YOUR MEETING WITH YOUR MILITARY-ECONOMIC ADVISORY PANEL (MEAP), 21 MARCH 1984

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86B00420R000701450001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 135
• Document Creation Date: December 22, 2016
• Document Release Date: October 6, 2009
• Sequence Number: 1
• Publication Date: March 20, 1984
• Content Type: MEMO

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SEURU
Military-Economic Advisory Panel
21 March 1984
Contents
Tab A Talking Points
Tab B Charter
Tab C Biograhies of Current Members
Tab D Evaluation of the Panel
Tab E Reports of the Working Groups on Military-Economic Analysis
Tab F Critique of the Last Panel Meeting
Tab G Recent Western Press Articles on Soviet Defense Spending
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2O March 1984
ME190RANDUH FOR: Director of Central Intelligence
FROM: SA/DCI/IA
SUBJECT: Your Meeting with Your Military-Economic Advisory
Panel (MEAP), 21 March 1984
1. You had requested that a meeting be scheduled with MEAP in
advance of their next regularly scheduled bi-annual session. This
session is part of your program to find out more about what your many
panels are doing. Thus, there is no formal agenda for this meeting.
Those in DDI/SOVA who have set it up, have billed it as a "getting
acquainted" session.
2,. At Tab A are possible talking points for your use. Included are
suggestions that you encourage the panel to continue their efforts in
directing talented analysts our way. Among other suggestions that you
night consider is the 'possibility that-the panel undertake 'a review of
DI ' s military-economic analysis.
At Tab B is a copy of the MEAD charter. Their focus is on
Soviet-and Non-Soviet Warsaw Pact military-economic analysis and SOYA,
for one, hopes that MEAP's efforts are not diluted through their
involvement in diverse and unrelated undertakings. At Tab C are the
biographies of the six panel members. MEAP's charter calls for a
membership of nine--hence there are three vacancies and you may wish to
obtain the views of panel members on possible new appointments. At Tab D
is an assessment of MEAP's performance, and at Tab E are the assessments
performed by MEAP on the subjects of Soviet military-economic analysis.
At Tab F are the minutes of the most recent MEAP meeting, which occurred
in November of last year. And finally, at Tab G are open press articles
dealing with the question of Soviet military-economic analysis.
4. If I can do more to help in your preparation for this meeting,
please call.
stt i
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DCI TALKING POINTS
21 March 1984 Meeting
with Members of the
Military-Economic Advisory Panel
1. At this meeting the Panel will not be making any formal
report to you and none of the members have indicated to SOVA any
particular issues they would like you to discuss. Because the
Panel recommended strongly the resumption of the publication of
unclassified reports on the costs of Soviet defense programs
however, you may wish to discuss that issue with them.
2. The following paragraphs outline some additional points
you may wish to raise with them, in some cases to share your
ideas and direction with them and in others to draw from them
their own perceptions and reactions:
-- On continuing need for the Panel.
The DDI's military-economic products have in the
past and will continue in the future to be
subjected to considerable scrutiny and criticism.
The issues of yreatest concern currently appear to
be: the relationship between DIA's estimates and
our own--where comparable measures are possible
they are in essential agreement; and the flatting
out of Soviet recourses devoted to weapons
procurement--DOD is greatly concerned about our
consumer's reaction to this because growth in
recent years of US weapons procurement places it
closer to the level of the dollar costs of Soviet
procurement than at any time in the last 10
years. The Panel's insights on these issues are
eagerly sought and you may wish to get their
comments directly.
How the Panel has been of use to us recently.
The Panel's recent efforts in reviewing the
Agency's estimates of Soviet military expenditures
were thorough and fair in every sense. Their
reports stated that the work was generally of high
quality but also provided useful guidance and
criticism. The external, independent review by the
Panel is now and will continue to be of value in
responding to an external critics. Their
recommendations are of value as well and SOVA has
dedicated most of its new positions in FY84 to
upgrading the military-economic work (including
research specifically on the military-industrial
complex).
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Possible future topics for the Panel.
Special foKLUs by the Panel could be helpful to
SOVA on subjects such as: ways to upgrade our
estimates of resources for Soviet military R&D;
techniques to improve the accuracy or at least
reduce the uncertainty in our projections of Soviet
forces; and reviews of CIA estimates pertaining to
Soviet energy. In addition, if you might wish to
discuss with the Panel the usefulness of having the
Panel undertake a review of DIA's military-economic
analysis.
The Panel and the quality of DDI analysis.
Strong analysts and excellent managers are the key
to our efforts to providing a quality product to
our consumers. We urge you to encourage the Panel
to continue, as they have in the past, to recommend
and indeed assist us in recruiting top-flight
scholars for this work.
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Military-Economic Advisory Panel
The Director of Central Intelligence has established the
Military-Economic Advisory Panel (MEAP) to provide a continuing
review of the US Intelligence Community's military-economic
analysis of the Soviet Union, China, and other Communist countries.
The Panel will focus its attention on research relating to:
The economy of the USSR, particularly as
this relates to Soviet defense activities
and capability.
Economic, political, and military considerations
that determine the size, pattern, and direction
of the Soviet defense effort.
Such other topics that may be specified from
time to time by the DCI.
In so doing, the MEAP will
-- Review and critique the data, concepts, and
methodologies used in military-economic
estimates as well as the appropriateness,
form, and scope of reporting the research
findings.
- Examine alternative methodologies, and
recommend actions--including the creation
of new research areas--to enhance existing
analyses.
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Military-Economic Advisory Panel
The Director of Central Intelligence has established the
Military-Economic Advisory Panel (MEAP) to provide a continuing
review of the US Intelligence Community's military-economic
analysis of the Soviet Union, China, and other Communist countries.
The Panel will focus its attention on research relating to:
The economy of the USSR, particularly as
this relates to Soviet defense activities
and capability.
Economic, political, and military considerations
that determine the size, pattern, and direction
of the Soviet defense effort.
Such other topics that may be specified from
time to time by the DCI.
In so doing, the MEAP will
-- Review and critique the data, concepts, and
methodologies used in military-economic
estimates as well as the appropriateness,
form, and scope of reporting the research
findings.
- Examine alternative methodologies, and
recommend actions--including the creation
of new research areas--to enhance existing
analyses.
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CONFIDENTIAL
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MILITARY-ECONOMIC ADVISORY PANEL EVALUATION
1. The Military-Economic Advisory Panel (MEAP), which was
formed in 1976 by the DCI, has provided a continuing review of
the Intelligence Community's military-economic analysis
pertaining to the Soviet bloc countries. The Panel primarily
focuses attention on research relating to the economics of the
Soviet defense effort, the economy of the USSR, particularly as
this relates to the burden of Soviet defense activities, and the
economic, political, and military considerations that determine
the size, pattern, and direction of the Soviet defense effort.
In doing so, the MEAP reviews and critiques the data, concepts,
and methodologies used in military-economic estimates as well as
the appropriateness, form, and scope of reporting the research
findings. Moreover, it examines alternative methodologies and
recommends actions to enhance existing analyses and investigates
and recommends ways of establishing limits and benchmarks with
which to check the reasonableness of existing estimates.
2. During the Panel's regular two-day meetings, which are
held in May and November each year, the Agency's managers and
analysts concerned with military-economic issues have benefited
from the give and take at these sessions. The Panel's expertise
has proved valuable over the years of controversy surrounding the
5 level and trend of Soviet defense spending. Those members who
are economists have provided an independent evaluation of new
intelligence in this area. The members with past government
experience in national security Agencies have advised on a more
efficient manner of communicating new information, and the
weapons-oriented members as well as the economists have evaluated
alternative approaches to estimating the Soviet defense effort in
monetary terms. The Panel also has identified areas of concern
requiring increased analytical effort, has recommended changes in
the organizational structure of the military-economic effort, and
has suggested undertaking high priority projects of interest to
the consumer. In all, the MEAP has provided the DCI and DDI with
an independent evaluation free of institutional interest in the
results or implications of the military-economic analysis.
3. During the past year, five members of the MEAP served
with a special working group that reviewed our economic analysis
of Soviet defense activities. one conclusion they reached was
that the Panel itself could enhance its contribution by narrowing
the focus of its attention. Whereas the Panel at times has
sought to enlarge the scope of its interests to Chinese issues,
technical collection programs, and studies of the institutional
environment within which Soviet policy is decided and
implemented, the focus now will be fixed on the complex problem
of military-economic analysis. Meanwhile, consideration will be
given to qualified candidates to fill the three vacant positons
on the Panel. We believe that informed criticism offered by the
MEAP in the area of military-economics will redound to the credit
of the Agency and the Community.
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REPORT OF THE WORKING GROUP
ON
SOVIET MILITARY ECONOMIC ANALYSIS
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July 20, 1983
Chairman
Chairman, Methodology Panel
STAT
STAT
STAT
STAT
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TABLE OF CONTENTS
Introduction .........................................1
Uses .................................................3
Methodology ..........................................8
Recommendations .....................................15
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REPORT OF THE WORKING GROUP ON SOVIET MILITARY ECONOMIC ANALYSIS
INTRODUCTION
The Working Group on Soviet Military Economic Analysis has finished its
review of the CIA estimates of Soviet military expenditures. Our instruc-
tions were to address three questions:
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- How good are the current estimates of Soviet military expenditures
and how can they be improved?
How are the estimates used and how can they be made more useful?
Given the intrinsic uncertainties in the estimates and the uses to
which they are put, would it be better not to publish some (or all)
of the estimates?
The working group chose to attack the problem as analysts rather than
as a blue-ribbon panel of experts representing divergent individual views.
By this distinction we mean the following: The group built up a consider-
able record of transcripts and documents, seeking data on precisely how the
estimates are made and used, and collecting opinions from a wide range of
users and observers on strengths and shortfalls. The group then drew its
conclusions based on the record rather than on the previous knowledge and
opinions of its individual members. In contrast, a blue-ribbon panel would
encompass the entire responsible range of opinion and attempt to find
common ground among the views and expertise brought to the panel by its
disparate momhPrs_
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and one on uses, then
We divided into two panels, oneoevaluatmethodology
and reach our conclusions.
met as a single group to perform our
The methodology panel received extensive testimony from the Offihee of Soviet
Analysis (BONA) within the CIA's Directorate for Theelaneln also interviewed
that prepares Soviet military economic
st1matesanalyses.
a bases for further analyses
estimates
a number of people who use the CIA
and who hold expert opinions on the methodology that goes into the esti-
mates. Outside observers and academic critics of the estimates also testi-
fied.
The uses panel interviewed staff members from most of the relevant
congressional committees and Pentagon, State, and White House officials,
past and present.
In reviewing the dollar and ruble estimates of Soviet defense programs,
process b which
we made one very important decision: we did not review the proc y men
the underlying military quantities -- forces, manpower, items of procure
-- are estimated. We concentrated, instead, on the ricin of these quanti-
ties, largely because most of the controversy on the CIA estimates es hass on
centered on problems of valuation. However we are aware that quantities, between CIA on the one hand and DIA on the other, have arisen
from time to time.
There are three parts to the final report. The first is this document
ens,
containing the overall evaluation and the executive
directedr to is the profess-
ionals second is the report of the methodology panel
ionals in the intelligence community. The third document will be an aonoxogy
that we have asked SOYA to prepare, documenting in one place
currently used by the CIA in making the dollar and ruble estimates. It the
both necessary and opportune to prepare this annex. Necessary because
current estimates are very badly misunderstood both inside andoutside the
intelligence community; opportune because SOYA witnesses presented more
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thorough yet concise description of their methodology than is available
anywhere else.
USES
Our principal findings concerning uses of the estimates are as follows:
1. There is a truly amazing lack of understanding -- both by users and
by other analysts -- of what the estimates of Soviet military expenditures
represent, how they may be used, and how they are developed. Even analysts
outside the CIA who work regularly with these estimates have glaring gaps in
their knowledge of the estimates themselves and conceptual blind spots in
regard to what the various estimates signify.
The dollar estimates of Soviet military spending are conceptually rather
straightforward. The CIA first estimates the "q's," or quantities, of vari-
ous items allocated to the military establishment each year. These quantit-
ies are then priced in dollars. There are, of course, many technical prob-
but the
lems in developing dollar valuations for the military quantities;
principle is clear -- it is an attempt to put a measure on the military
goods and services procured by the USSR in one year, in the dollar units
familiar to US policymakers, which can then be compared with the US budget
for acquiring the same military goods and services in the same year. The
military spending estimates do not measure relative capabilities. They do
not even price the capabilities of the two military establishments at a
given point in time. For this purpose, one would have to price stocks,
taking into account inventories, obsolescence, and other sources of depre-
ciation. Instead, the current procedures estimate the prices of annual
flows or additions to the stocks. The estimates do not measure the base
stocks at the beginning period or the depletions to stock through con-
sumption or depreciation.
"At what point in the
In any pricing process there arises the question,
process should the price be recorded?" The Soviet dollar prices reflect the
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? price at the point where the goods and services are delivered to the mili-
tary, rather than the point at which inputs are first committed to military
ends.
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Dollar estimates of Soviet defense spending offer no clue to the Soviet
military burden as the Soviets must see it. For these uses it is necessary
to estimate Soviet military spending in rubles, which is more difficult to
do. Dollar and ruble estimates are discussed at greater length below.
Even this rudimentary picture of the role of dollar and of ruble esti-
mates is not understood by many of the people who use and quote the esti-
mates. There is also a widespread lack of knowledge, on the part of people
who should know better, concerning the way the estimates are made. Gross
errors in methodology were attributed to the CIA analysts without any justi-
fication at all.
2. Related to the gross misunderstandings currently rampant concern-
ing the economic estimates, many of the users quote or exploit the esti-
mates in a way that reflects badly on the credibility of the CIA. The
Soviet military expenditure estimates have been politicized over the past
decade in the conflict between proponents and opponents of increased U.S.
military budgets. The partisans of higher U.S. spending in the Pentagon or
in the Congress tend to emphasize the Soviet-American gaps in the dollar
calculations and not be concerned about the methodology of the dollar
estimates, but they are frequently suspicious of the ruble burden estimates.
On the other hand, those who oppose the Administration's defense proposals
incline to be skeptical of both the dollar costing of Soviet forces and the
validity of expenditure comparisons in general.
We found a curious ambivalence on the part of congressional staff com-
mittees, and in fact on users in general. On the one hand, most of the gov-
ernment witnesses think that the CIA people do a good job and are honest in
explaining their assumptions; on the other hand, many of the congressional
staff expressed the belief that the dollar estimates in particular are pol-
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.
itically motivated and can be made to support any story that an administra-
tion wishes to make. This suspicion of political motivation, when coupled
with the 1976 major revisions of the ruble estimates and the current recal-
ibration of the 1976-1961 procurement estimates, undercuts overall credibility.
The finding that the CIA estimates are frequently misunderstood as
as misused for political purposes suggests the posooflSovo that
Soviet military
should simply stop publishing or even preparing estimates
expenditures. For reasons that we discuss below, we think this idoea is both
undesirable and impractical. Instead, it is essential that C
job of explaining, documenting and qualifying the estimates. Obviously,
some users will not wish to heed the explanations and qualifications
should accompany the estimates, but others will respond to better inform-
ation. We recommend, in fact, the opposite action; i.e., that the CIA
itself publish the estimates, that their meaning and limitations be ex-
plained more fully, and that the CIA put restrictions on theirWush byeo her
ap-
executive branch agencies, requiring that they CIA should be prepared to
propriate qualifications. In particular, and should push
brief and explain its estimates more fully to the Congress,
for the right of prior approval of descriptions of "the threat" in Depart-
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ment of Defense statements and congressional testimony.
3. The estimates of Soviet military expenditures have other
the users are generally unaware. The dollar estimates have an
force the analysts to pay attention to military topics
rect value -- they
that would not otherwise get the care that they merit, such as maintenance
policies, ammunition stocks, production, and mobilization base. These
ct-
topics are essential to an understanding of readiness and combat effe
the
iveness, but are well analyzed only because they so affect
quantities to be priced as part of a dollar estimate.
The dollar estimates support broad comparisons between US and Soviet
forces, either intoto or by category. Examples are comparisons by mission
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(e.g., strategic forces), by account (e.g., procurement or total invest-
ment), or by theater, although the latter should cover NATO and Pact forces
also, as discussed later. The dollar estimates are also a necessary inter-
mediate stage in the development of ruble estimates.
The ruble estimates, although more difficult to produce with confidence,
are equally important to a wide range of professional users. The ruble es-
timates are essential to any overall analysis of the Soviet economy, an
obvious point when one realizes that the military economy comprises 1/6 to
1/7 of the overall Soviet economy. It is highly regrettable that CIA has
ceased open publication of summary reports on Soviet military expenditure,
in dollars and in rubles. The public dissemination of this information
contributed to enhanced understanding of Soviet policy and of the Soviet
economy and by feedback of criticisms and reactions helped improve the
quality of SOVA's analytical products.
The users were unanimous in their opinion that the various players in
the defense debate --'the military services, the Secretary of Defense and
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his office, the congressional committees and their staffs, and the genera
public -- absolutely demanded a shorthand yardstick to compare US and Soviet
military spending, as a surrogate for an overall comparison of capabilities.
Several of the witnesses said that they would prefer or would settle for a
comparison of investment-type expenditures (i.e., procurement, R&D and
military construction) rather than or in addition to overall defense spend-
ing comparisons.
The service representatives need to continue to receive dollar compari-
sons by service, while several OSD and congressional staff claimed that they
would also use comparisons by mission area, at least for strategic forces.
A widespread desire was expressed for matching up NATO versus Warsaw Pact,
particularly for Europe-oriented forces. This desire seemed to come from
two groups -- those who wanted to picture the "spending balance" in a light
more favorable to the West, and those who believe correctly that, because so
much of the USSR's forces are oriented towards NATO, a comparison of the re-
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0 lative strengths of both alliances is necessary to obtain an accurate pic-
In the current situation the CIA produces standard dollar comparisons,
and then the advocates argue about the policy implications of these compar-
isons. All parties argued strongly that this was a better situation than
that which would be obtained if the CIA abstained from publishing dollar
comparisons and each advocate published his own. In fact, the users all
argued that the CIA should produce a wider range of comparisons and more
fully describe and qualify these. As a practical matter, the Defense and
Intelligence Committees argued that Congress would not let the CIA cease
producing estimates and comparisons of military spending even if the CIA
wanted to. In any event, the users all agreed that the objective of informed
policymaking was better served by having an impartial body like the CIA do
the comparisons, rather than having each advocate prepare his own.
These three findings on uses, taken all together, lead to the following
conclusions:
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The CIA should continue to produce and publish both dollar and ruble
estimates of Soviet military expenditures.
The CIA should be more, not less, aggressive in explaining and sup-
porting the estimates, including the dollar comparisons, and more
assertive in assuring that the executive branch uses and qualifies
the estimates properly.
On the dollar side, comparisons of subcategories are useful: current
comparisons by service, by mission, by account (i.e., procurement,
O&M, manpower, construction). Comparisons not now made, e.g., by
theater, or at least NATO vs. Pact in Europe, would also be useful.
The latter comparison is difficult and would require much more work.
- The ruble estimates are controversial and under appreciated. Al-
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though these are required for a number of legitimate economic pur-
poses, it is these estimates that also cause most of the credibility
problems for the CIA.
METHODOLOGY
Our principal findings concerning methodology are the following:
1. Overall, and in spite of the range of deficiencies that we will de-
the CIA does an excellent job of
lineate in the next several paragraphs,
a number
estimating Soviet military expenditures. We will recommend
otofb-
badly needed improvements below. However these criticisms should
our principal conclusion: the staff performing these estimates com-
bines professionalism, competence, ingenuity, and interest in their work to
a very high degree.
2. There is a single concept that underlies all of the dollar valu-
ations of Soviet defense expenditures except those for R&D. This device, concept
is the price that the US would have to pay to buy or make
procure the service, using US production practice or prices but Soviet de-
funda-
sign, personnel, or operating practice. We believe that this iSO4a tlunea on
mentally sound concept, quite appropriate for the limited uses,
pp. 3-8, to which the dollar estimates can be put. To repeat, the primary
use is to put a price on the basket of military products and services
acquired by the USSR in one year for comparisons with the same products cand
services that the US purchases. The secondary goal is to form
cost estimates for those accounts -- procurement and O&M -- in which the
ruble estimates are developed from the dollar estimates.
3. The R&D estimate is made on a different conceptual basis from the
dol-
others. Instead of trying to decide how much it would cost then in the
lars to produce the same technical advances fresourcehinputseto Soviet mili-
tary tries to estimate the dollar value
tary R&D, which is the concept of the ruble measure. The current method-
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? ology of estimating the ruble value of R&D, which is then translated into
dollars, is based on a limited foundation of evidence. Alternative meth-
odologies are now being investigated. Since R&D comprises a major share of
the total value of Soviet military expenditure, introduction of an alter-
native methodology is of the highest priority. In the meantime, improve-
ments in the current estimating basis can still and should be made.
4. Several criticisms are repeatedly voiced concerning the dollar est-
imates, but we have found most of these to be groundless. Three of the
most commonly heard are:
That the dollar estimates of Soviet military pay are severely mis-
leading. If US pay increases, dollar valuations of both Soviet and
US military spending increase, hardly affecting the comparison. Fur-
thermore, the ratio of US to Soviet military pay shows less change
going from dollars to rubles than do the ratios for procurement, O&M
or any other account. In large part this is because the Soviets use
higher ranks in a given job than would the US, offsetting the higher
US pay for a given rank. Both the dollar and ruble pay estimates
are meticulously prepared and are among the most reliable of any of
the military expenditure estimates.
That the CIA fails to take into account technological improvement in
Soviet weapons and thus understates the dollar prices, as well as
the ruble unit values derived by translation from dollar prices, of
modernized Soviet weaponry. This charge reflects misunderstanding
of the CIA procedures, which do attempt to allow for qualitative
change over time.
- That the CIA uses learning curves incorrectly, and thus underesti-
mates procurement costs. Learning is a real phenomenon that does
reduce military costs, and we believe that SOVA uses learning curves
in a conceptually correct and careful way -- by applying learning at
the component and sub-assembly level rather than by entire weapon
1P system.
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5. The recent change in the estimates of procurement growth demon-
strate an important fact: even spending estimates for recent years, al-
though they ostensibly refer to realized expenditures, in fact contain
forecasts. In particular, estimates made for the immediate past two or
three years are really based on limited information, and have the range of
uncertainties associated with forecasts. Spending estimates for periods
three to four years in the past are only slightly revised in successive
updates and therefore can be considered as having high confidence. More-
over, estimates for the more recent past cannot be used to support conclu-
sions, for instance, about rate of growth of Soviet military spending in
the last two or three years.
This point is extremely important. Estimates of Soviet military
spending are not accurate enough to decide if.this'year's or next year's
military budget is growing faster or more slowly than the overall Soviet
economy.
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6. The ruble estimates serve a range of analytical uses and policy is-
sues as important as those for which the dollar estimates are made, since
the ruble estimates relate the military economy to the overall economy.
Questions of burden and of growth can only be answered in the context of
ruble spending. Any serious analysis of overall Soviet economic perform-
ance must deal with the military economy in ruble terms.
Unfortunately, some of the most difficult conceptual and practical
problems in estimating Soviet military expenditures occur in trying to make
ruble estimates that will adequately address those issues. One of the prob-
lems with ruble pricing is that the ruble price basis is now very old --
military expenditures and GNP are estimated in constant 1970 prices. SOVA
is now engaged in an effort to update the price basis of the estimates to
1982, the year of the latest major Soviet price reform. This is a very
high priority task. This updating must include national income accounts,
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as well as military spending accounts.
is the limited
A second problem, at least in the procurement account,
amount and range of ruble price information. There are several was aavail-
able to improve ruble pricing. One is to make greater use of the extensive
ruble price spite of the problems
lists we have for foreign trade items, in sroduction for
that these involve. A second is to estimate SoveSttmcost atesoshould provide
many of the major military systems. These cost
prices are updated
plausibility checks on the ruble mites, especially once priceetup a
to 1982 rubles. A third is to study and learn more about price
particularly the profit component, in Soviet defense industries.
7. The CIA estimates of Soviet military expenditure in rubles and
Soviet defense burden are well thought out and carefully drawn.
their own frame of reference, these are meaningful calculations. However,
there are two purposes for which complementary calculations are desirable.
First, the Agency seeks to approximate an estimate of burden as Soviet de-
cisionmakers might calculate it. But the Soviets do noWe measure They use
of their economy in terms of gross national product as
concept of net material product, which excludes services. Therefore,
to
calculation of burden in these terms ought also to be made, trace the trend. Second, it is to be expected that the Soviets use
current, not constant, ruble prices to measure military spending.
The Agency wishes to estimate the true opportunity costs of Soviet
military activity, from a Western point of view. Comparisons of US and
Soviet military spending are done on a comparable basis, but the definition
opposed burden
t of Soviet military spending is too narrow tofburdenheasfull
to US-
Soviet defense puts on the Soviet economy. For Soviet
Soviet comparisons, one should reflect the importance of the following
items, listed in increasing order of difficulty to quantify-
- Civil defense
- Costs of maintaining reserve defense production facilities
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- Mobilization base
- Construction, such as extra highway costs and railroads
- Strategic reserves of grain, petroleum, etc.
- Opportunity cost of running defense industry on a separate supply
system.
8. The ruble estimates also suffer from a conceptual problem which has
become significant in light of the observed procurement slowdown. The
ruble prices are fixed at the same point in the resource flow as are the
dollar prices, i.e. when acquired items pass into the hands of the mili-
tary. This methodology can be described as one of pricing outputs, not
inputs. If procurement costs go up due to falling productivity, bottle-
the cur-
necks, technical or production problems, or other such problems,
rent methodology will not catch these increases until the Agency succeeds
in transferring the estimates to a new price base. We literally do not
know whether the Soviets have deliberately kept procurement investment
constant for the last five years, or are merely having trouble getting new
deliveries out of their procurement pipeline as fast as the flow of re-
sources into production is rising. However, with the current methodology
both explanations would show up in flattened estimates of ruble procurement
expenditures, whereas intuition requires rising expenditures if they keep
increasing inputs.
This point is extremely important because it bears on the assessment of
changes in the burden. Although the ruble military expenditure series is
essentially a quantity index with 1970 price weights, it was legitimately
interpreted as a measure of real change in expenditure as long as there was
no evidence of divergence between growth of inputs and outputs. If such a
divergence has been taking place, the Agency series will not reflect the
real change in burden. This limitation must be carefully explained in the
ruble expenditure paper.
9. There is some benefit in comparing the Soviet-US spending ratios
expressed in both dollars and rubles, on the expectation that the ruble
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? ratio will be lower than the dollar ratio, and that the "truth" lies some-
where in between. The CIA is subject to legitimate academic criticism for
not publishing the ratio expressed in rubles, and hence exaggerating the
Soviet spending excess. To allow for this, the CIA does attempt to reprice
US military spending in rubles in order to compare it with Soviet spending
in rubles, but the resulting ratio is used mainly to show that the two
ratios differ by less than 15-20%- The working group is split on the
implications of this statement -- the Chairman believes that, all in all,
the work that would be needed to perform US ruble estimates is better
invested elsewhere. The methodology panel believes that more effort should
be invested in improving the US ruble estimates and in incorporating them
into the analysis of US-Soviet comparisons.
10. The basis for all Soviet military expenditure estimates is a
building-block, bottom-up approach. Although this is the only approach
that can produce the accuracy and detail required by the many uses to which
the estimates are put, there is always the risk that components not easily
visible as major blocks will be left out. In order to check overall plaus-
ibility of these estimates, it would be desirable to concurrently prepare a
top-down gross estimate via an alternative methodology, utilizing Soviet
economic and financial statistics to derive estimates of concealed military
outlays in the announced reports on the state budget, net material product
and output of the machinery industry. These methods have been tried in the
past with anomalous results. However, it is important to continue monitor-
ing the data sources to see whether better results can be obtained.
0
11. It would be moderately useful to have comparisons of Europe-
oriented NATO vs Europe-oriented Warsaw Pact military spending. It would
make no sense merely to total up the spending of the alliances, since mem-
ber states have dissimilar worldwide obligations and forces. Therefore, to
get a meaningful comparison it would be necessary to disaggregate Soviet
(and US!) forces by theater before trying to put pricing of the forces of
all the alliance states on a common dollar basis. Soviet order-of-battle
are kept on a theater basis, but the same is not true for the theater-ori-
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ented rear forces and activities. Disaggregation would be a very large
? job. The quantity estimates for eastern Europe are poorer than those for
the Soviet Union. Pricing factors in dollars for both eastern and western
Europe would be necessary for a wide range of equipment, operational prac-
tices, military pay, and manning policies.
12. Organization and resource questions enter as well. The recent
SOYA reorganization substituting regional for functional offices was in-
tended to allow cross-cutting interdisciplinary studies to take place, an
objective which is to be commended. However cross-cutting studies can be
effective only when they integrate well-done component analyses in the in-
dividual functional areas. When the total amount of resources devoted to
analysis are thin, as appears to be the case today, redirecting efforts to
the major cross-cutting studies at the expense of the component analyses
means that the component analyses will suffer, and these major studies will
be built on a shaky foundation. Since the military economic estimates are
component analyses, they have suffered badly from the redirection of effort
under the SOVA reorganization and the consequent reduction in the number of
analysts doing these estimates. These effects were also reflected in the
1982 update, which proceeded much more slowly and with greater difficulty
than did earlier ones.
We think that it is a serious mistake to no longer have a single point
of focus for military-economic analysis within SOVA. By splitting up these
estimates among the various branches SOVA has lost the centralized method-
ology, discipline, and continuity that characterized these estimates in the
past.
13. SCAM, the computer program that is used to generate the economic
estimates, is obsolete and needs updating or replacement by a modern pro-
gram with interactive data entry and editing, a data base management sys-
tem, and various other data processing improvements. SOVA is now working
out a follow-on system with the aid of an outside contractor. The panel
expresses its support for this effort.
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RECOMMENDATIONS
Our recommendations fall into three categories. The first set might
best be characterized as policy recommendations dealing with the objectives
and management of the program as a whole. The second set deals with inter-
actions with the using community; while the last set deals with methodolo-
gy. Since methodology recommendations carry resource implications, we
place relative priorities on this set of recommendations. Additional re-
commendations are contained in the report of methodology panel.
Policy
1. Because the overall military economic program is worthwhile and, in
fact, demand for results exceeds the current capacity of the analysts to
produce, the program should be continued and at a higher level of resources
than is currently available.
2. A single, SOVA-wide coordinator for military expenditure estimates
should be appointed. This is a top priority item. Continuity of assign-
ment for the analysts is also required.
3. When estimates are published within the government (whether or not
on a classified basis), the CIA should affix mandatory qualifications.
Qualifications on dollar estimates should deal with their limited scope of
application. Qualifications on ruble estimates should deal with uncertain-
ties involved in inferring burden and trend.
Authority over intelligence data within the executive branch should
be established, such that these data may not be published or quoted without
the mandatory qualifications.
4. One should distinguish between retrospective analyses of historical
data, on the one hand, and forecasts or analyses of policy alternatives on
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the other. The former should be published widely and on an unclassified
? basis as far as security will permit; the latter should be kept in govern-
ment channels. Summary ruble and dollar expenditure reports should be
published regularly and in unclassified form, too, as far as security
considerations will permit. SOVA's existing efforts to engage outsiders in
helping to improve its analytical product deserve encouragement and
support.
5. Because the Soviet R&D estimates are so poor, they badly distort
estimates of Soviet military spending. Until the R&D estimates can be
improved, therefore, overall comparisons of US and Soviet military spending
should exclude R&D spending from both totals.
User relations
1. The basis for both the dollar and the-ruble estimates should be
aggressively explained and briefed with emphasis on what these-are supposed
to represent and limitations on their applicability. One possibility is to
have a separate spokesman/briefer on the topic.
2. The annex documentating current methodology for making the esti-
mates of Soviet military spending, as discussed at the beginning of this
report, should be prepared.
3. It would probably be worthwhile to organize an annual users group
to confer on the current state of the estimates and to discuss the research
plan for the coming year.
Methodology
1. The current methodology of estimating Soviet ruble R&D should be
reviewed, making fuller use of the accessible information. To the extent
possible, the work on alternative ruble and dollar methodologies should be
accelerated. This is a top priority item.
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2. The current effort to replace the 1970 ruble price weights with
1982 prices should be encouraged and fully supported. This is a top
priority item.
3. To compare military spending with the size of the overall economy,
one needs a good estimate of the size of the overall economy. GNP method-
ology should be reviewed and Soviet GNP estimates prepared in 1982 ruble
prices.
4. The sources of data and analysis used to derive ruble prices
for procurement can be expanded. Possibilities include use of foreign
trade ruble prices and estimates of cost of production for military items.
More detail is given in the methodology paper. This is a high priority
item.
5. While the ruble price basis is being changed, special studies
should be performed to evaluate the possibility that productivity is
declining in the industries that produce defense items. Inputs may be
rising faster than outputs, making ruble procurement estimates, computed
according to the current methodologies, overstate defense procurement.
6. In performing Soviet burden calculations, the impact of the addi-
tional coverage items described in paragraph 7, p. 12 above, should be
examined. This is a medium priority item and should be part of a longer
term effort to describe the impact on the overall Soviet economy of the
extensive militarization of many civilian sectors.
7. A program should be initiated to review the alternative, top-down
methodologies for verifying the building-block estimates. This is a medium
priority item.
8. A longer-term program should be initiated to concentrate on NATO
and Warsaw Pact forces. This requires a number of steps: disaggregation of
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Soviet forces by theater; determination of pact quantities other than
of battle; pricing of pact forces, each in its own currency; d sa99
riorit
forces by theater; pricing of NATO forces. This is a lower p Y+
of US
-term program, but some plan should be developed in the near term.
long ,
lace SCAM with a new system.
9. A move should be made quickly to rep the standard OMB circular
The first step should be a requirements study of significant efficiencies in
A-76 type. The study should identify
An objective is to decide if a
the use of analysts' time can be effected. .will suffice, or if a new system
simple reprogramming using new technology
design is required.
0
0 is
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?
Report of the Methodology Panel
of the Working Group
On
Soviet Military Economic Analysis
July 1983
0
Methodology Panel
Chairman of the Working Group
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STAT
STAT
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CONTENTS
0. OVERVIEW AND KEY FINDINGS............................ 3
I. INTRODUCTION, ...................................... 9
A. Origin and Mandate............................... 9
B. Scope of the Review.. ..... o.o.-o-oo ..... o-o-oo---1O
C. Assessment Criteria ...................5....5.....11
D. Contents of the Report...........................12
II. CONCEPTS AND METHODOLOGIES ...........................13
A. General Analytical Rationale...... ...............13
B. Dollar Costing Concepts and 14ethodologies........16
Co Ruble costing..... ... o.o.o .... oo.o.o.ooo ... oo***.23
D. RDT&E ............................................28
E. The Burden of Defense........... .................30
F. Ruble Valuation of U.S. Expenditures........ ..... 34
III. VALIDITY AND RELIABILITY OF THE ESTIFtATES........ ....37
A. The Strategic Cost Analysis hlodel ................37
B. Comprehensiveness of the Estimates.......... ... o.38
C. Robustness of the Estimates ...................... 41
D. Biases and the Critics ...........................45
IV MANAGEMENT ...........................................51
V. RECOMMENDATIONS ......................................55
10
APPENDIXES
A. U.S. Government and Non-government Observers
Consulted by the Methodology Panel ...............59
B. List of Supporting Materials Submitted by
Observers Consulted ..............................61
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REPORT OF THE METHODOLOGY PANEL OF THE WORKING GROUP ON
SOVIET MILITARY ECONOMIC ANALYSIS
0. OVERVIEW AND KEY FINDINGS
This report by the methodology panel of the ad hoc working
group assembled by the Deputy Director for Intelligence, CIA, is
concerned with the quality of the methodology used by SOVA to
estimate the ruble and dollar costs of Soviet military activity,
the burden of Soviet defense, and the ruble value of U.S.
military programs. The panel has been concerned only with
costing, not with the estimates of physical quantities, and it
has focused on the estimates made in recent years. The quality
of the estimates is assessed in terms of their replicability,
appropriateness of valuation concepts, fidelity of implementation
of the concepts, plausibility, accuracy and robustness.
The need for such estimates arises in two main contexts: (a)
measuring the comparative resource inputs into military activity
in the United States and the USSR, for which purpose dollar costs
are one of two theoretically appropriate sets of trade-off
relationships, the other being rubles; (b) assessing the burden
of defense on the Soviet economy and society, for which rubles
are the most appropriate yardstick. The indicator of comparative
resource inputs that is the CIA measure, whether both countries'
activities are measured in rubles or dollars, is to be sharply
distinguished from measures of military capability, which require
estimates of the military capital stock, adjusted for
depreciation and obsolescence. Military expenditure aggregates
cannot readily be framed for that purpose, largely because of:
the dependence of military capabilities on scenarios envisaged
for the use of force and on such military intangibles as
leadership and morale; non-optimal defense procurement
decisionmaking; the problems of calculating depreciation and
obsolescence; and the practical difficulty of developing
estimates of physical stocks in the United States. One of the
increasingly important tasks of Agency presentation of the
estimates, in oral or published form, is making sure that users
understand which questions the estimates can be used to address,
and which they cannot answer.
The panel finds that the conceptual criterion guiding the
production of dollar costs of Soviet defense is well-thought out
and appropriately chosen among the alternative concepts. CIA
measures the flow of resources to military uses at the point
where goods and services are acquired by the military forces, and
they value the quantities involved at the cost in the United
States of buying the particular item--that is, in its Soviet
configuration and design, but with allowance for U.S. production
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techniques and factor proportions. With the exception of RDT&E,
discussed separately below, the estimates are generally
successful in achieving consistent execution of that rationale.
Our major conclusions regarding "the dollar estimates are:
? Personnel costs are one of the most meticulously
estimated parts of the whole system of estimates,
applying U.S. pay rates and allowances to a detailed
breakdown of the Soviet forces by function.
? Procurement costs have been sharply improved by shifting
to contractor studies producing engineering analyses or
more sophisticated improved cost estimating
relationships. We find room for improvement in the
effective guidance by the Agency of these contractor
studies, but the quality of procurement estimates is now
high. We believe criticism of these estimates on the
grounds of failing to take technical progress into
account or improper accounting for learning in
production to be unfounded.
? Improvement in the procurement account should also have
benefitted the estimate of the dollar cost of O&M.
0
Except with respect to 1970 itself, the ruble estimates in
1970 prices must be seen as an intellectual construct rather than
as an attempt to replicate an actual figure recorded somewhere in
Soviet official accounts. Our major conclusions regarding the
ruble estimates are:
? Personnel costs are one of the most satisfactory
components of the total; they are estimated'on the basis
of detailed ruble cost information and supported by an
elaborate manpower model.
? Construction is first direct costed in rubles. The
estimate has been raised sharply and improved
significantly as a result of a new sampling methodology
intended to get systematic coverage of less easily
observed elements of military construction. The ruble
cost factors are based on extensive Soviet information.
S
O&M outlays are estimated by norms relative to ruble
values of equipment stocks and procurement costs.
? Procurement poses the most difficult challenge to cost
estimation. Some items are estimated directly in
rubles--ship hulls of major surface combatants, based on
a Soviet merchant-ship estimating model, or some tanks
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and aircraft, for which ruble prices are available.
Others are converted from the dollar side with the aid
of ruble-dollar ratios. The methodology of processing
ruble prices and constructing average ruble-dollar
ratios has recently been conceptually and empirically
refined. The methodology now takes conscious account of
uncertainty in the prices and attempts to minimize bias
caused by uncertainty. However:
0
- The ship model needs updating at an early
opportunity.
-- There is a need for further analysis of Soviet
price formation, the plausibility of the weapons
prices in SCAM, and the uncertainty attaching to
these prices.
-- Insufficient attention has been given to the
possibility of estimating ruble-dollar ratios from
available Soviet foreign trade data as alternatives
to or checks on currently used ratios.
The panel has little confidence in the estimates of RDT&E in
either rubles or dollars. Up to 1979 the starting point of the
ruble estimate was the official series on total science
expenditures. The 1970 update substituted a calculation based on
manpower numbers, the average wage in R&D and the share of wages
in total R&D outlays. Since 1980, the estimate is obtained by
scaling down the implied growth rate of the 1970s to a little
over 6 percent, on the basis of observations about the growth of
military R&D facilities. The panel believes there is little
evidential basis for any of these procedures. The conversion to
dollars proceeds on the basis of an aggregate ruble-dollar ratio,
one of whose components can no longer be reproduced by SOVA
analysts.
Studies of alternative approaches are underway, but the work
is proceeding slowly and it does not seem likely that the results
will be ready for introduction into the system soon. The panel
recommends that until the alternative approaches are ready:
More effort should be put into the present approach, and
into making it more defensible, by more thorough
exploitation of available Soviet data.
The published analyses should skip lightly over the
RDT&E numbers and exclude them from the totals
developed.
CIA estimates of the burden of Soviet defense, the ratio of
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military expenditure to GNP (both in rubles) are widely
misunderstood and heavily criticized. There may be shortcomings
in the factor cost adjustments of both numerator and denominator,
owing to insufficient information on Soviet prices. With this
exception and in its own terms, this measure is well defined and
executed. However:
? There is a need to develop a measure that incorporates a
better evaluation of the greater degree of
militarization of the Soviet economy relative to those
of the West. Such a measure would take account of and
attempt to measure activities excluded from the current
definition--e.g., civil defense, maintenance of reserves
for expansion of defense production, maintenance of
mobilization potential, and the like. The subject of
mobilization potential and strategic reserves deserves
renewed study.
? In the broader measure, an effort should be made to
reflect the full opportunity costs of the imposition of
military priorities on the civilian economy.
? More thought should be given to measures of military
outlay that Soviet leaders might consider in appraising
the burden.
? The CIA measures of burden are also handicapped by using
the prices of 1970, which are increasingly remote from
present scarcity relationships. Programs are underway
to change the valuation basis for the ruble estimates to
a 1982 base. To accomplish this task a major effort
will be necessary in 1984-85. The changeover will be
incomplete, however, unless a set of national income
accounts in 1982 prices is also developed. The panel is
concerned that the SOVA team dealing with national
income accounts is losing its key analyst.
? Shifting to a new price base will also enable SOVA
analysts to deal more effectively with the problem that
recently appeared of a possible divergence between the
Agency's series for Soviet defense in 1970 ruble prices
and changes in the physical volume of resources actually
allocated to defense.
Size comparisons of U.S. and Soviet military activities are
and should be made in rubles as well as in dollars. CIA's ruble
costing of U.S. defense is complicated by the difficulties of
estimating U.S. quantities and the costs of producing U.S.
equipment in the USSR. The panel finds:
is
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? The Agency's effort to compensate for the intrinsic
difficulties of the calculation involves a number of
adjustments relying heavily on judgment but which
significantly undercut major criticism of these
estimates.
? The spread between USSR/U.S. defense size ratios in
rubles and dollars is smaller than those for other
categories of GNP, but this probably reflects a tendency
on both sides to produce forces in accordance with
military, not economic, criteria.
? However, the ruble estimates of U.S. defense receive
distinctly secondary attention in SOVA's work, and
quality improvements in the methodology are possible.
Size comparisons of annual flows continue to be
misinterpreted in a capability sense. There is a need for
estimates of weapons stocks, taking account of depreciation and
obsolescence.
The panel notes that there is considerable pressure for NATO-
Warsaw Pact comparisons. This does not appear to us of the
highest priority, but extension of the existing estimates to
include non-Soviet Warsaw Pact countries would help respond to
criticism of U.S. government use of Soviet-American comparisons
alone.
The Strategic Cost Analysis Model now used as the foundation
of the costing effort has considerable power but also deficiences
in its programming component. These are well appreciated by SOVA
and a follow-on to SCAM is now being planned to eliminate most of
them. The panel expresses its strong support for this effort.
The Agency's work on methodologies for estimating Soviet
military expenditure that are complementary to the building block
approach has been intermittent and conducted at a lower level of
intensity, in part because of doubts about the feasibility of
attaining significant results with these alternative
approaches. However, they have the potential of furnishing at
least a partial verification test of the comprehensiveness of the
building block estimates and therefore should be pursued more
systematically.
Except for the major revision of 1975-76, the estimates
appear to have been relatively insensitive to refinements in
concept and methodology or improvements in data collection over
time, thus exhibiting a healthy degree of robustness.
0 The panel examined the management of the costing effort,
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particularly in its reflection in the 1982 update. It finds:
? The 1982 update revealed the toll on military economics
resulting from the regional reorganization of the
Directorate of Intelligence,"in the course of which the
Military-Economic Analysis Center (Division) was
dissolved, and from reduction of the scale of the
military-economic effort. The effect of these changes
could be seen in prolongation of the update and
difficulties in maintaining normal processes of quality
control. On the other hand, the joining of military and
economic research within SOVA enabled a more integrated
approach to dealing with the questions raised by the
apparent slowing of procurement growth.
? The military-economic estimating process requires a
central focus to maintain quality control and evaluate
new findings.
? The process is costly. With reduced resources, ways
would have to be found to alter the mode of estimation
and to reduce client expectations with regard to the
questions posed to SOYA. However, the panel considers
it unreasonable and impractical to cut back on quality
and ability to respond to customer demands. It sees no
way to avoid augmenting resource allocation to the
effort.
The panel has no doubts about the value of the estimating
effort, in terms of the need for and the usefulness of the
product, and in terms of the quality and analytical relevance of
the estimates. We have high regard for the talents of those who
have been responsible for development of the estimates over
time. We recommend strongly that the effort be continued and
supported appropriately.
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1. INTRODUCTION
A. Origin and Mandate
At the request of the Deputy Director for Intelligence, CIA,
an ad hoc working group of non-government experts was assembled
to conduct an independent review of the CIA's Soviet military
expenditure analysis program. The group was headed by
DDI requested that the group consider "the accuracy of the
estimates and the uses to which they are put, including the
possible need for changes in methodology, analysis or
presentation."
Based on the above guidance, the working group determined
that it would attempt to answer three sets of questions:
1. How accurate are the estimates that have been developed
to date? What are the major gaps in information/data, and how
severely do they affect the estimates? What are the strengths
and weaknesses of the analysis of the estimates performed by
SOVA?
2. To what uses are the estimates put? How well do they
serve these uses? Are the estimates being misused?
3. If the estimates are not as useful as they might be, or
are being misused by the consumers, should the effort be
curtailed in whole or in part? Alternatively, could the
estimates be made more useful by: (a) improvements in accuracy
through changes in estimating methodology or by direction of more
resources to the estimating effort; (b) improvement,in the
analysis of the estimates; (c) changes in the methods of
presentation of the estimates?
The working group divided into two panels, the first
concerned with the methodology and the second with the uses of
the estimates. The task of the methodology panel, consisting of
methodology or resources to be committed to the estimating
effort.
attention to a part of the third set covering changes in
of questions. However, the panel also paid considerable
The methodology panel conducted its investigation on the
basis of extensive interviews, recorded and transcribed. Some
40-50 hours were spent interviewing SOVA analysts, in order to
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understand precisely what the current methodology is and how it
has changed over time. In addition, the methodology panel
consulted or conducted interviews with a considerable number of
current and former officials of the U.S. government, as well as
outside, non-government academic experts who were critical of the
CIA estimates. A list of those consulted by the panel is
included with this report (Appendix A) along with a list of the
supporting documents submitted by several of the individuals
consulted (Appendix B).
B. Scope of the Review
The subject of this inquiry is the CIA's estimates of Soviet
military expenditure. By the estimates" we mean the Agency's
calculation of (a) the dollar costs of Soviet military
activities, (b) the ruble value of Soviet defense expenditures,
(c) the ruble value of U.S. military programs and (d) the burden
of Soviet defense as the ratio of defense expenditures in rubles
to the gross national product in rubles. In addition, we will
also refer to CIA-reworked values of U.S. budget outlays in
dollars used to draw size comparisons of U.S. and USSR military
activities. However, we have not reviewed the CIA procedures for
developing these values from U.S. budget outlays.
Several other disclaimers about the limits of this inquiry
should be stated:
1. The panel has not reviewed the estimates of physical
quantities--that is, manpower numbers, quantities of weapons
procured, and the like. The report concentrates on the valuation
and costing part of the military-economic effort. The
distinction between quantity and value is a not always clear and
in several categories of the estimates cannot be maintained.
Thus, the presently used procedure for estimating R&D does not
concern itself with physical quantities at all; much of
operations and maintenance is estimated with the aid of norms
related to values of procurement or stocks. Nevertheless, it
remains generally true that estimates of quantities have been
taken as given, and the methodology panel has inquired only into
the validity of the valuations.
2. The panel has not attempted to trace the complete history
of the estimating effort and to examine in detail the reasons for
the changes that have taken place over time. In particular, we
did not undertake to examine the justifications for the major
change in the ruble estimates that took place in 1975-76. Our
effort concentrated on the recent estimates and their formation.
3. An important disclaimer relates to the criteria of quality
we have used in assessing the estimates, as is explained below.
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C. Assessment Criteria
The panel's assessment of the estimates takes into account
the following criteria for assessing the quality of the CIA's
estimates.
Replicability. There should be explicit documentation of
data sources, definitions, estimating rules and assumptions, such
that all the numbers in the system may be individually
replicated. It is assumed that fully reproducible estimates are
also free of calculating error.
Comprehensiveness. The estimates should have the scope and
coverage, in both concept and implementation, to meet the
objectives of the measurement.
Appropriateness of Valuation Concepts. The valuation
concepts should reflect and fulfill the purposes of measurement
and be consistent across the various categories into which the
whole is subdivided.
Fidelity of Implementation. The methodology of estimation
should result in the creation of a system of prices, wages, unit
costs, etc., which fully accord with the valuation concepts.
Plausibility. This may refer to various stages of the
results--to the units of valuation (prices, wage rates, or unit
costs) or to aggregates at various estimating levels.
Plausibility may be gauged against intuition--the numbers may
have an apparent meaning and magnitude that is intuitively
acceptable--or external evidence.
Accuracy. Accuracy is generally understood as accord with an
empirical reality--for example, Soviet outlays on R&D. The
accuracy of such an estimate may be tested by developing
alternative measures of the empirical referent. When the
estimate bears on an intellectual construct of the system under
examination--for example, the dollar cost of Soviet military
programs--the accuracy of concepts and methodology can be gauged
only in the sense of conformity to the desired standard. Even
here, however, external evidence may be relevant as a test of
plausibility or perhaps even of accuracy of components. One test
of the quality of the whole estimating effort is the extent to
which external evidence is sought and adduced to test
plausibility and accuracy.
Robustness. The estimates should be relatively insensitive
to refinements in concept and methodology or improvements in data
collection.
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With respect to the first criterion, the panel was concerned
primarily with documentation; we have not attempted. to manipulate
the estimating system in order to test replicability. We will
discuss the other six criteria in varying depth, paying
particular attention to the valuation concepts and their
implementation. Thus, the panel has not attempted to "audit" the
estimates, and even within the coverage limitation discussed
above, this report cannot pretend to represent a complete
evaluation of the estimates. Nevertheless, we believe we have
reviewed the system in sufficient detail to express supportable
judgments regarding major aspects of its quality.
D. Contents of the Report
Part II discusses the costing concepts and the
procedures for applying them in practice, beginning with the
general rationale for such value aggregates and then continuing
on to examine the ruble and dollar estimates in some detail. In
relation to the criteria outlined above, the assessment
concentrates on conceptual appropriateness and fidelity of
implementation. The other criteria are dealt with in Part III.
Part IV considers the management of the estimating effort, and
the report concludes with a set of recommendations in Part V.
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II. CONCEPTS AND METHODOLOGIES
A. General Analytical Rationale
The fundamental rationale for producing these estimates is
that for various purposes one needs an aggregate--a single number
that answers the question, "how large is the Soviet military
effort?" This is true whether the concern is Soviet trends over
time, comparison with the U.S effort, or comparisons with other
Soviet aggregates such as GNP. For many purposes it may be more
useful to look at disaggregated measures in physical units, but
at some level of analysis policymakers instinctively ask for an
aggregate. It usually turns out that prices are the most useful
way to combine incommensurable physical quantities. Only in this
way is it possible to bring together the various aspects of the
U.S.-Soviet comparison, and the divergent trends for various
elements in the Soviet program. Moreover, inasmuch as CIA
devotes large resources to estimating force levels, assessing
technologies and designs, and estimating output of military
hardware, it is extremely valuable to have the aggregate costing
effort as a framework to guide and discipline this work for
completeness, quality, and consistency.
The search for broad perspectives on the size of the Soviet
military program arises primarily in two analytical contexts.
One is concern with the size of the Soviet effort in relation to
that of the United States in various breakdowns. For this
purpose the Agency's effort focuses on dollar valuation. This
provides figures that U.S. policymakers can intuitively
understand and react to. Moreover, this is an appropriate basis
for valuation, since the dollar price system represents one of
the two theoretically relevant sets of trade-off relationships
that can be used to assess comparative resource inputs of the two
countries. The other set is rubles, but for reasons indicated
later, ruble size comparisons have not received equal prominence.
The second use of the monetary value or cost of Soviet
military activities is to aid in assessing the burden of defense
on Soviet society. There is a presumption that in the context of
other information regarding Soviet policies, a burden measure can
tell us something about Soviet priorities and intentions, limits
on Soviet military expenditures, and on possible Soviet reactions
to arms control overtures or changes in U.S. military posture.
Since the concern is the burden as Soviet decisionmakers might
perceive it, it is appropriate for this purpose to aggregate
quantities with ruble price and cost weights.
Two corollary concerns of interest to U.S. policymakers can
le also be dealt with only by value aggregates of varying degrees of
comprehensiveness. One concern relates to the structure of
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Soviet military allocations (by mission, region, resource
category, etc.) and changes in structure over time. The other is
the need to gauge the growth of the Soviet military effort: is
the burden changing, is the USSR catching up, falling behind, or
moving ahead in comparative level of effort? One can approach
this last set of questions by calculating the burden or
comparative size at successive points in time, but growth rate
comparisons are often a helpful way of examining the issue.
One of the most serious confusions in using the CIA estimates
is a temptation to interpret them in terms of capabilities--
Soviet relative to the U.S., or changes in Soviet capabilities
over time. These estimates are not intended to and cannot
support such interpretations. The numbers measure the flow of
resources allocated to the military end-use each year. That flow
includes both current inputs, such as personnel services and
outlays on operations and maintenance, which are used up within
the year, and capital inputs, such as construction and
procurement of hardware. Capabilities at a given time are a
function of the flow of services from the stock of military
capital (which includes equipment acquired at various points in
the past) plus the flow of current inputs. Thus, the growth of
the allocations of inputs to the military end-use is not a.
measure of the growth of capabilities, nor is the relative size
of Soviet and American expenditures in a given period a measure
of relative capabilities at that time. Comparison of cumulated
flows of investment elements of military expenditure over
extended periods of time are only a crude approximation to
measures of relative capability.
It is sometimes suggested that the Agency's aggregate
measures of Soviet military effort would be more useful if they
were designed not to measure input flows, but to measure military
potential or capabilities. Unfortunately, there seems to be no
satisfactory way to use prices to aggregate across all the kinds
of forces being measured to arrive at totals that can stand
interpretation as measures of capability. Four main reasons
block progress on this score: the dependence of capabilities on
the scenarios envisaged for the use of force and on military
intangibles; non-optimal defense procurement decisions; the
problem of depreciation and obsolescence; and the practical
difficulty of developing a set of physical quantities for stocks
on the U.S. side, structured comparably with those of the USSR.
Military forces have important political uses in peacetime,
but they are raised and maintained primarily for possible
employment in war. The outcome of battle is, however, not a
simple function of ability to apply physical force, of what might
d the "force potential" of weapons and soldiers. It
ll
e
be ca
depends also on the context in which war takes place--for
example, conditions of terrain and weather, number and types of
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allies on either side, and so forth. It also depends on a
variety of intangible and probably inherently unquantifiable
elements, such as leadership and morale.
Even if we abstract from context dependence or the role of
intangibles and confine the meaning of capability just to force
potential, there are still other difficulties. At the time of
acquisition, any given piece of U.S. equipment is presumably
subjected to the test of whether its contribution to U.S.
military capabilities matches the cost of alternatives forgone,
so that dollar values may putatively measure capability at the
time. Many observers would dispute the validity of that
interpretation, in view of the bureaucratic and political forces
distorting the efficient allocation of military budgets in the
United States or in other societies. Whatever position one takes
on that issue, changes over time in the contribution of military
equipment to military potential take place in complicated ways
(simple wear and tear, obsolescence because of replacement on
one's own side or technical advance on the other side,
maintenance or enhancement of capability through repair and
modernization), so that it is difficult to find acceptable ways
of adjusting acquisition values to reflect changes in
capability. Analysts do try to aggregate various kinds of forces
using non-economic measures of military worth, such as firepower,
and seek comparative evaluation of forces in scenario-specific
situations. We encountered some experiments with aggregating
stocks by prices, especially an effort to develop relative U.S.-
Soviet stock values for naval surface combatants. None of these
efforts, price-based or using other common denominators, involves
aggregates of the scope attempted in the CIA estimates of
military spending.
As for the fourth problem, estimating U.S. stocks in physical
units, the task will probably have to be undertaken 'by other
agencies; it seems outside CIA's mandate.
An important implication of the fact that the dollar totals
are not intended to be used as measures of capability is that it
is unnecessary, indeed inappropriate, when estimating the dollar
cost of some Soviet unit to try to take account of performance
differences. The same applies in figuring ruble values for U.S.
equipment. The point is discussed further in section II B below.
I To sum up, the Agency effort is clearly and advisedly
conceptualized as intended to measure the cost of the resources
the USSR allocates to military uses each year, either in rubles
or in terms of what it would cost the United States to acquire
the same amounts of the various inputs to military capability.
It is the consistent application of this definition that gives
the estimates their integrity, but this integrity is maintained
only as long as the estimates are not loaded with other
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r
interpretations. Making sure that users understand the questions
the estimates can be used to address, as well as the questions
they cannot answer, is a major and increasingly important task in
presenting them, orally or in published form.
B. Dollar Costing Concepts and Methodologies
The first ttep in estimating the cost of Soviet military
expenditures in either dollars or in rubles is to establish
quantities--physical amounts of the resources allocated each year
to military use, such as number of men, new facilities
constructed, the number of ships newly commissioned, etc. The
accuracy of those numbers is obviously an important determinant
of the quality of the estimates. As noted, the panel did not
attempt to review the methodology for estimating the underlying
quantities, though a few evaluative comments will be made in Part
III. Here we are concerned with the derivation of the dollar
unit costs by which these quantities will be multiplied in the
aggregation process.
1.Conceptualization of Cost
A central question motivating this review is whether the
estimates are in fact conceived and implemented in a way that
makes them suitable for the purposes described earlier. We find
that the process of producing the dollar figures is guided by a
well thought out conceptual criterion. A commonsense starting
point would be the question, "how much would it cost the United
States to buy the resources the Soviet leaders allocate each year
to the military end use?" Simple as this sounds, it is in fact
ambiguous because it leaves unclear at what point in the process
of turning economic resources into military forces the flow is
measured. One might for example, calculate the dollar cost of
Soviet hardware procurements by asking what it would cost in the
United States to hire the number of people that work in the
Soviet defense plants producing the hardware, to buy the
materials used in those plants, and so on. Alternatively, this
resource flow could be measured much farther downstream, by
asking what it would cost in the United States, using U.S.
equipment design philosophies, manning approaches, repair
practices, etc., to field a force matching the Soviet in
capability. The first approach would generate a much larger
dollar total than the second, since the former.would not allow
for higher U.S. productivity in producing military hardware, nor
permit any latitude for resource-saving improvements on Soviet
choices at any stage of the process--design of equipment, or
technical and organizational choices for combining diverse
elements into a given capability. The Agency's analysis of
Soviet weapon design, organization and production practices
suggests that there are, indeed, large system inefficiencies of
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this kind.
In our view, the Agency analysts follow a clear rationale for
choosing among alternative concepts of dollar cost, and generally
succeed in getting consistent execution of that rationale. Their
rule is to measure the flow at the point where goods and services
are acquired by the military forces. That is, they measure how
much it would cost in the United States to buy (at prices
consistent with U.S. institutional arrangements, profit patterns,
and the like) the goods and services the Soviet military
establishment receives each year to maintain and expand the
USSR's military forces. They seek uniformity in practice by
figuring the dollar cost to acquire or support the "units"
defined in the Agency's basic military-economic accounting
framework, the Strategic Cost Analysis Model (SCAM), i.e. such
things as an item of equipment, a military formation, or the
annual 0&M support for a piece of equipment or a military
formation.
The approach used can be clarified in terms of some possible
alternatives for costing an item of procurement--a set of
concepts that has come to be called the X, Y, and Z costing
models--whose features are summarized in the following
tabulation. These models may be contrasted with an analogue
approach.
?
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Model
X
Y
Z
Technology
us
US
Sov
on Production History
Design
US
Sov
Sov
and Capacity
Sov
Sov
Sov
The X, Y and Z approaches approach require a reasonably full
technical description of the item (which may come from actual
possession of the piece of equipment or from technical
intelligence), on the basis of which a contractor, usually a U.S.
manufacturer of the corresponding kind of equipment, estimates
the cost to produce it in the United States. The analogue
approach is to find the closest possible U.S. counterpart of the
Soviet item in terms of performance, and to assign the Soviet
item the cost of the U.S. analogue. The analogue method was used
extensively in earlier years, but it has been virtually
completely dropped today.
The X, Y and Z alternatives are defined in terms of different
combinations of assumptions about design and manufacturing
technology employed. All three approaches assume that the
required production capacity and experience are available in the
United States, and (where this is relevant) that location on the
learning curve is defined by Soviet production history.
The X model calls for estimating the cost of providing a unit
similar to the Soviet unit, but allowing changes in design
features and production techniques to conform to the practice of
U.S. producers. In this conception, if the Soviet unit being
costed were a piece of equipment employing tube rather than
solid-state electronics, the cost would be estimated for
producing a similar piece of equipment but designed with the
solid state electronics that would be used in the United States
to perform roughly the same function. The estimated cost for
producing this design assumes the use of U.S. manufacturing
methods and materials.
In the Y model the cost estimator accepts the physical design
features of the Soviet equipment, but estimates the cost of
producing that design using U.S. manufacturing technology and
materials. If a Soviet ship lacks the damage control systems
characteristic of U.S. ships of comparable types, or provides
less room per person for its crew, those features of the Soviet
design are accepted in figuring what it would cost a U.S.
producer to produce such a ship.
? The Z approach calls for the costs of providing the unit,
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using not only the Soviet design but also Soviet materials and
manufacturing techniques.
To see what this means, consider the way an aircraft would be
costed under each of these models. Under the X model, the
contractor estimating the production cost in the United States
would be asked to characterize the aircraft in terms of such
attributes as weight, speed, and range, and would use a cost-
estimating relationship (CER) based on U.S. experience to
estimate the cost of producing a plane with such
characteristics. In the Y model, the Soviet equipment would be
much more fully described in physical terms, and the contractor
would be asked to estimate the cost of producing a plane of that
design. The Z model would follow the concept, "what would it
cost in the United States to replicate Soviet acquisition of the
plane," even more literally in requiring that the U.S.
manufacturer assume he were using Soviet materials and production
methods.
With the important and unfortunate exception of RDT&E, the
Agency analysts properly adhere to the Y concept throughout. The
X model is a mixed performance and resource cost criterion, and
therefore ambiguous in its interpretation. The Z model is.
conceptually extreme in demanding U.S. replication of Soviet
factor allocation patterns, material use and manufacturing
technologies. U.S. contractors would not have detailed knowledge
of these matters, which would be expensive to develop. There
remains sone ambiguity in the Y model as to what is meant by
accepting the Soviet "design" in all the different contexts in
which the issue arises. In the case of equipment, for example,
there is a hierarchical structure relating physical attributes of
a piece of equipment to its performance, and we can specify
"design" in terms of variables at various levels of'that
hierarchy. Imagine a Soviet piece of equipment in which a given
degree of reliability is achieved by redundancy, where the
American manufacturer would produce the same result by using
higher quality components. We can tell the cost estimator to
treat the actual physical layout as the "design" he is to
reproduce, or alternatively to take the specified degree of
reliability as the "design" feature he is to match. There is an
inherent ambiguity here as to what is meant by "design." The
higher the level at which design is specified, the more it
appears as if one.is trying to value the Soviet equipment in
terms of its capability rather than its cost. In our view, any
such contamination of the cost concept with capability overtones
is of little quantitative importance, since it is confined within
the "units" of SCAM. Given that there are some 1300 of these in
the model, they tend to be at a low level of aggregation.
? Though we have illustrated these concepts with equipment
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is
examples, the Y concept of accepting Soviet design is followed in
other contexts as well. In the case of repair, for example, the
Soviet proclivity for buying more overhauls of a piece of
equipment than U.S. forces do is taken as given, and the question
is, how much would it cost to buy the number of spares and to do
the number of major overhauls over the service life of the given
piece of equipment that Soviet practice calls for?
As an important exception to the general approach outlined
above, RDT&E is estimated as the dollar cost of Soviet outlays on
these activities, rather than as the cost of replicating in the
United States the RDT&E achievements produced for the military,
such as developing a given communications satellite, or achieving
a specified gain in missile accuracy. More will be said on this
component of the estimates in Section II D below.
2. Implementation of Dollar-Costing in Practice
How well is this concept realized in practice? Is CIA in
fact able to develop dollar costs that fit this concept for the
various resource components of total military expenditure
(procurement, operations and maintenance, personnel, etc)? How
in fact does CIA get dollar prices? The best way to evaluate
this is to discuss practice for each account of the estimates:
? Personnel. The largest component in the dollar total for
Soviet m liitary expenditures is pay and allowances of personnel,
which accounted for over 30 percent of the total in 1981. This
is one of the most meticulously estimated parts of the whole
system, and is supported by a separate manpower model feeding
into SCAM. A major feature of the methodology is the application
of U.S. pay rates and allowances not to the Soviet rank structure
but to the Soviet job structure, since the Soviets use a
different set of rank-job assignments, often requiring officers
for functions where the United States would use NCO's, for
example. The Agency manpower model takes each person in the
Soviet armed forces, specifies the kind of job he does, and
assigns to him the U.S. rank that would be used to do that job.
U.S. pay and allowances for the U.S. rank are then taken as the
personnel cost of each serviceman.
This might be considered a slight departure from the Y
model, since the personnel costing specifies Soviet "design" in
terms of jobs, rather than accepting the literal rank structure
of the Soviet forces. On the other hand, one can argue that the
rank structure should be thought of as an aspect of "production
technology" rather than "design." The effect of this choice is to
reduce the value of Soviet manpower costs relative to a procedure
that would attach U.S. pay and allowance scales to the Soviet
rank structure.
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Procurement. Procurement is the second largest component of
the dollar tr otaT, accounting in 1981 for about 25 percent. The
three most important categories are aircraft, missiles, and
ships. Since together they account for about two thirds of the
dollar value of procurement, the quality of cost estimation for
these items has a powerful impact on the accuracy of the
estimates. Land arms account for another 7 percent of the
total. For all these categories we believe the estimates are
done with the degree of thoroughness, care, checking and guidance
needed to ensure trustworthy results. In an earlier period,
costs were estimated by analogy with U.S. models of comparable
capability or by crude parametric models. During the second half
of the seventies, there was a shift to extensive contractor
studies for estimating costs of major Soviet procurement items,
and a notable growth in the sophistication of the cost estimating
models used for all major equipment categories. Procurement is
now costed largely on the basis of detailed engineering studies
or elaborated, "Sovietized" CERs, which take into acount the
specific features of the Soviet model.
Moving from simple analogue or parametric estimation to the
more sophisticated techniques has often resulted in significant
change in unit costs of particular weapons. A dramatic example
is provided by the ZSU 23-4 anti-aircraft system. Originally
costed on an analogue basis, direct engineering analysis
subsequently raised the unit cost 13.4 times. However, most such
improvements in costing result in far smaller changes, and not
necessarily in one direction. At present, nearly 30 percent of
all items are costed by engineering analysis, about 60 percent by
"Sovietized" CERs, and only 10 percent by analogy with U.S.
equipment.
Effective guidance and supervision by the Agency is crucial
in determining the quality of these contractor studies. We
believe this has been good, but it depends heavily on personal
interaction between Agency analysts and contractor. The written
guidance and documentation needed to communicate to contractors
the precise concept of cost the Agency is seeking to reduce may
be weak.
Two points regarding the cost estimating procedure merit
special mention. One of the most insistent critics of the Agency
estimates is Professor Steven Rosefielde, one of whose major
claims in published work is that the dollar costs are understated
because they are estimated on the basis of a "fixed-vintage"
model, with inadequate allowance made for quality improvements
between generations of equipment. In fact the CERs used in the
Agency estimates take explicit account of intervintage changes in
design complexity and the resulting effects on costs, and
Professor Rosefielde's published criticism is based on an
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inadequate understanding of the methodology followed. We are not
able to judge the thoroughness with which technical change is
allowed for in practice.
Along with some other critics, Professor Rosefielde has also
disputed the way "learning" is handled in the estimation of
dollar costs. The issue concerns the meaning and construction of
"constant" prices. For many kinds of equipment, especially
aircraft, Soviet production runs are very long, and presumed cost
reduction by learning important. Hence satisfying the criterion
of "what it would cost in the United States" to acquire the
amounts of these aircraft the Soviets procure should take
learning into account. It is the panel's view that it is
appropriate to consider the "constant" procurement cost of a
weapon subject to learning (whether in rubles or in dollars) not
as a single value but as a schedule of costs in the base year
that would have prevailed had the scale of output expanded
accordingly during that year. The effect of taking account of
learning is to reduce the level of costs (although not
necessarily their rate of growth), relative to an approach that
ignored learning. However, this is to be expected and seems
clearly justified. In estimating the U.S. cost of aircraft
acquired in a given year, their position in the Soviet production
sequence is used to locate them appropriately on U.S. learning
curves. This is the proper approach, since the question concerns
how much those aircraft would cost in the United States if
produced at Soviet output scales.
Learning is taken account of in a more subtle way than might
at first appear, since it is applied at the level of the SCAM
unit, rather than at the level of the complete weapon system.
For example, aircraft engines are tracked separately from
airframes in SCAM, allowing for the learning effect 'on aircraft
cost separately for each. For a missile produced in large
numbers and used in several missions, the benefits of long runs
can be allowed for in each of the situations in which it is used.
Ships are another item for which learning is significant, but
here the only distinction made is between the high cost of the
lead ship of a given design, and the lower, uniform, cost of
subsequent ships in the series.
0 erations and Maintenance. This category accounted for 23
percent of total expenditure in 1981. The basic approach here is
the use of O&M "factors" tied to quantities in the SCAM model.
In a simple example, say, the maintenance of a building, annual
expenditures on maintenance would be expressed as a fraction of
the acquisition cost. For aircraft, repair cost is figured as a
ratio of lifetime repair outlays to the original cost of the
aircraft, and the resulting value is allocated over time in
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accordance with Soviet practice. These estimates are basically
made first in rubles and then translated into dollars with the
aid of ruble-dollar ratios.
Construction. This is a fairly small item (about 4 percent
of the dollar total in the early eighties). It is estimated
first in rubles and then converted to dollars by use of ruble-
dollar ratios. Issues in estimating the original ruble amount
are discussed in Section II C.
Research and Development. This is the least satisfactory of
any of the components. Our criticisms refer to it as a part both
of the dollar estimate and the ruble estimate, and it will be
easier to discuss it separately in Section II D below.
. Price Adjustments. The dollar costs initially estimated for
any element of the estimates carry a particular date: e.g., the
cost of a given tactical aircraft generated by an in-house CER
or, perhaps, estimated by a contractor, will be figured in prices
of a particular year. Each such cost must eventually be
expressed in the price level of the year serving as the weights
for the annual updates. Thus, the tactical aircraft cost may
have been calculated with reference to 1975 and must be expressed
in, say, 1981 dollars for the 1982 update. For this purpose, CIA
employs a large number of standard U.S. price indexes at a fairly
disaggregated level, combined in a variety of weighting patterns
to produce indexes appropriate to the various components. We did
not review this part of the estimating procedure in detail, since
the component price indexes used are not estimated independently
by the CIA, and since it seems to be a reasonably straightforward
task to manipulate them appropriately.
C. Ruble Costing
Estimates of Soviet military expenditure in 1970, the base
year of the CIA's constant price ruble series, may be viewed as
approximating an aggregate on the books of Soviet financial
authorities. But as the entries in the CIA series move away from
the base year, before or after, the ruble estimate must be seen
as a construct rather than as an attempt to replicate an actual
figure recorded in Soviet official accounts. This is so not just
because the estimate is expressed in constant 1970 rubles rather
than in current prices, but also because its scope is defined by
the CIA concept of what should be included. Actually two totals
of appreciably different scope are estimated. The first derives
from the purpose of comparison with U.S. expenditures and
accordingly reflects the DOD definition of defense activities.
The second concept is broader and was developed as an attempt to
approximate in coverage what the Soviet decision makers might see
as defense outlays. Some questions on this issue are raised in
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Section II E below.
The ruble total adds together components estimated in a
variety of ways. Some are estimated directly in rubles, others
are calculated by converting components originally costed in
dollars to rubles by using appropriate ruble-dollar ratios. The
best way to explain how this is done and to present our
evaluation of the process is to review the accounts
individually.
Research and Development. Soviet expenditures for RDT&E are
first estimated directly in rubles. The panel considers the
underlying methodology and the resulting estimate unsatisfactory,
for reasons explained in Section II D.
Personnel. Personnel cost in rubles is derived from very
detailed estimates of the number of military personnel (by ranks)
and civilian employees of the Ministry of Defense, multiplied by
rates of pay and allowances, adding the cost of clothing, food,
and utilities. The total is adjusted upward by roughly estimated
costs of pre-induction military training programs at various
educational institutions. The estimate is well grounded in
detailed ruble cost information and is supported by the
elaborate, subsidiary (to SCAM) manpower model mentioned earlier.
Construction. First direct costed in rubles, construction is
a fairy small item (only about 3 percent of the ruble total in
the early eighties). Until recently it was done somewhat
crudely. The biggest problem with construction in a building
block approach is the difficulty of covering construction
comprehensively by observation. Work in early years concentrated
on getting the best possible estimates for such expensive and
easily visible items as airfields and silos. In 198'0, a careful
review was carried out in an effort to get systematic coverage of
the less easily observed forms of construction. The chief
innovation involved intensive imagery-based study of the
components and the time pattern of development of the capital
infrastructure in a sample of typical military units, with
extension of the fully developed patterns to all corresponding
units. The ruble cost factors are based on extensive Soviet
information on cost estimating norms for various components and
types of construction, regional and climatic adjustments, and
cost overruns that are well substantiated in Soviet source
material. As a consequence of successive revision of the
construction estimate through the 1970s, the level of the series
was raised several fold.
Operations and Maintenance. Estimates of ruble costs of 0&M
are based on norms for such expenditures related to ruble values
of weapons and other equipment stocks reflecting actual Soviet
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practices. Specific rates for maintenance and repair, expressed
as percentages of procurement prices, are derived from civilian
analogs (based on a special study of aircraft and ship
maintenance and repair), and are applied to the estimated value
of the stock of equipment on hand. Other costs, such as POL, are
calculated on the basis of the stocks of equipment and estimated
rates of use, as well as extensive ruble price information.
Procurement. This is the largest resource category in the
ruble estimate, acccounting for nearly half the total in the
early 1980s. Given the paucity and ambiguity of the ruble price
information available for this large, heterogeneous category, it
is also the one posing the most difficult challenges to cost
estimation in rubles.
Costs for some procurement items are estimated directly in
rubles. The costs of major surface combatants (excluding
electronics and armaments) are derived from a Soviet merchant-
ship cost-estimating model relating to the early 1970s. The
model was developed on the basis of ships smaller than most major
surface combatants. But it is sufficiently complex to permit
taking into account most of the developments in basic ship
structure that have resulted from vintage change. It should be
emphasized that ship electronics and armaments are costed
separately.
Another portion is estimated esentially by multiplying
quantities of equipment procured by actual ruble prices. The
major items treated in this way are aircraft and tanks. At
present CIA has a significant number (approximately 100) of ruble
prices, encompassing most of the important components of
procurement. Unfortunately, these are rather heterogeneous with
respect to date and definition and they must be processed
extensively to make them suitable for use as "constant 1970"
prices, either for direct costing or for forming ruble-dollar
ratios. The first step in using these prices is to define their
meaning in several dimensions. It is necessary to specify the
year to which they probably refer; whether the weapon is subject
to learning; at what point on the learning curve the particular
price emerged; and so on. Some judgments must also be made as to
the reliability of the source.
The next step is to define a best estimate of the "1970
constant price" for the item, a process in which a statistical
procedure is used to minimize the bias involved in the
uncertainties attaching to each element of the price
identification. Ideally, prices for years later than 1970 should
be adjusted for price level change. In the absence of reliable
price indexes however, possible inflationary change since 1970
simply becomes an additional element of uncertainty in the bias-
minimizing process. The resulting "constant 1970" prices are
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used to value those procurement items with which they are
associated, for inclusion in the ruble procurement total.
For the remaining procurement items, ruble values are
obtained by converting the dollar cost estimates of the
corresponding categories (originally estimated as Soviet
quantities times estimated dollar unit costs) to rubles by means
of average ruble-dollar ratios. These synthesized ruble-dollar
ratios are created by aggregating the known ruble-dollar ratios
in a given product group, derived from division of a known ruble
price by its dollar cost counterpart, using a weighting procedure
that minimizes the variance in uncertainty.
In brief outline, this is the basic procedure for estimating
procurement in rubles. In evaluating the resulting total, the
major issues on which one should focus are: the validity of the
ship costing model; the reliability of the set of available ruble
prices (used directly in costing and indirectly in constructing
the average ruble-dollar ratios); the appropriateness of the
methods used to process this price information into individual
ruble-dollar ratios and for aggregating these ratios to construct
group averages.
The panel is persuaded that: a) While the ship model dates
from the early 1970s, it is apparently sufficiently detailed to
encompass vintage changes. However, the model is best suited for
ships that are somewhat smaller than the surface combatants to
which it is applied. It would seem desirable to update the model
at an early opportunity; b) There is enough ruble price
information available to validate what is done for the remainder
of the account and to generate acceptably close results; c) SOVA
analysts have exercised care in screening the price information
to be reasonably sure they know what they have; d) the
statistical techniques used for minimizing the bias introduced by
uncertainty in the price information represent a methodologically
sophisticated and intelligent approach.
However, there are some uncertainties concerning the 1970
ruble prices and ruble-dollar ratios and a number of steps could
be taken to strengthen the reliability of the estimate:
1. There is need for further analysis of various economic
parameters entering into price setting in Soviet defense
industries, with particular emphasis on those, such as capital-
output ratios, that affect profit levels. It would also be
useful to select several Soviet weapons for which reliable prices
and other relevant data (length of the production runs, level of
subcontracting, etc.) are available and test the "reasonableness"
of these prices by estimating current costs of production using
input-output data. Such studies have not been undertaken before
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and their potential utility is considerable, not only for dollar-
to-ruble conversion but as a basis for the factor cost
adjustments introduced in the calculation of the defense burden,
which at the present time, are rather rough.
2. We do not know enough about cost accounting and price-
setting rules in Soviet defense industry and this introduces an
element of uncertainty in cases where the ruble price of a Soviet
weapon is estimated by applying an average ruble-dollar ratio to
the estimated U.S. dollar price. As a rule, profitability rates
(ratio of profits to capital or profits to cost) differ
significantly among Soviet industries and even among products
within the same industry or plant. By using an average ruble-
dollar ratio based on a sample of Soviet prices, the methodology
creates a ruble price with an averaged profitability ratio
which may or may not correctly reflect the profitability norm set
for the weapon by Soviet planners. This is an element that might
well be considered in setting subjective uncertainty limits on
the raw ruble prices.
3. Although there is a considerable volume of Soviet foreign
trade prices for both military and general purpose machinery,
these have so far not been used to develop procurement ruble
prices and ruble-dollar ratios. SOVA argues that Moscow often
heavily discounts the prices of weapons and equipment exports to
meet foreign competition, and that the sample of available
foreign trade prices is both small and lacking in definitional
information. Nevertheless the panel believes there may be room
for plausibility testing of ruble prices and ruble-dollar ratios
on the basis of information on arms exports. Ruble-dollar ratios
calculated from this information might even provide alternatives
to ratios being currently used by SOYA. Ruble-dollar ratios can
be computed for identifiable weapons and general purpose
machinery for which we have domestic ruble prices and foreign
currency prices at which these items were either sold or
purchased abroad.
In any event, there is a considerable discrepancy between
some producers durables ratios estimated by CIA (published in
1980) and ratios estimated using Soviet export data. For example
the unweighted CIA ruble-dollar ratio for 9 Soviet trucks was
0.37 rubles per dollar but a ratio of 1.27 rubles per dollar can
be computed using the price at which these trucks were sold
abroad. In the latter set of ratios we know that the prices are
those of identical products. Similar discrepancies can be cited
for tractors and construction machinery. The spread between the
two sets of ruble-dollar ratios is alarming and strongly suggests
the need for more comprehensive work on machinery prices.
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U. RDT&E
In the 1981 estimate RDT&E accounted for 17 percent of the
dollar total and almost a quarter of the ruble total. It is also
the fastest increasing component in the Agency's estimate of
total military expenditures, growing at about 8 percent in the
1970s and since 1980 at something over 6 percent per year.
Between 1976 and 1981 nearly half the increment in the Agency's
estimate of total military expenditures in rubles is accounted
for by R and D (4.9 out of 11.2 billion rubles). The credibility
of the overall series thus depends in an important way on the
credibility of the R and D series. In the view of the panel,
there is very little foundation for the estimates of R and D,
either in rubles or in dollars, and we consider R and D the
component of the estimates most needing attention.
Military R and D is estimated first in rubles. Originally
the starting point was the official series on total science
expenditures. Since this was thought to be incomplete in
coverage, a new methodology introduced for the 1979 update
estimated total R and 0 on the basis of manpower numbers, the
average wage in R and D and the share of wages in total R and D
expenditure. This comprehensive total was then split between
civilian and military on the basis of a few vague statements in
Soviet sources interpreted to refer to the share of military in
total R and D. In our view, none of the underlying Soviet
statements really says what is attributed to them. The
correction of this current price series to a series in 1970
prices was done in a manner that seems to us incomplete and
unsatisfactory.
The method used in the last several years is even cruder.
Applying the original approach in the 1970s generated a series
showing growth at about 8 percent. The Agency analysts thought
that was reasonable on the basis of what they knew about the
expansion of facilities, the growth of major programs, and other
evidence. In the latter part of the seventies, however, it was
thought that this approach was producing an unrealistically high
growth rate, and since 1980 the estimate of R and D expenditure
produced by the methodology described has been scaled down to a
little over 6 percent on the basis of what can be observed about
the growth of facilities known to be devoted to military R and D.
In our view, there is very little evidential basis for any of
these procedures. The statement about how much the official
"science" series understates all R and D is very vague and no
serious work has been done on how this relates to the difference
between U.S. and Soviet definitions of what is in R and D. The
estimated share of military in total R and D is based on a
similarly vague Soviet statement concerning what fraction of R
and D is used to raise productivity in the economy, and there is
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no indication in the source of what the author means by that, or
what total his figure refers to. The few additional benchmarks
used to check the current estimate are all equally undefined.
The evidence on which SOVA relies as to the share of wages versus
other inputs in the total is not necessarily applicable to he
coverage of the military manpower figures with which the 1979-
update methodology starts. The panel does not have alternative
evidence to offer on what these figures should be, but the
support for the current numbers is extremely weak, and the Agency
has not fully explored the range of evidence available.
For the estimates in dollars, rubles are converted with the
aid of an aggregate ruble-dollar ratio, which originated in the
mid-seventies by weighting ratios for separate components of the
total, specifically labor and nonlabor. For nonlabor, a general
ruble-dollar ratio thought to represent relative costs in
manufacturing generally was used; documentation for the labor
ratio is no longer reproducible.
The implicit overall aggregate that emerges, .46 1970 rubles
per 1980 dollar, seems high. As a kind of calibration, in the
work done by one of the panel members for the NSF, the ruble-
dollar ratio for total R and D that emerged was about .20 rubles
per dollar, less than half that used in the Agency estimates.
? The main reason for the difference is that the Agency estimate
attributes a large share of total R and D expenditure to
industrial production-type activities, and the NSF study may well
have underestimated that share. The effect of using a ruble-
dollar ratio lower than the one now used would be to make the
CIA's dollar series even higher than it is now.
On the other hand, the dollar value of Soviet R&D seems
implausible. At 37.6 billion dollars in 1981, it is twice the
U.S. value of 17.9 billion dollars. The Soviet-U.S. expenditure
ratio seems improbably large for a comparison parallel with those
in the other accounts, namely, how much technological advance is
being delivered to the military. We would expect the RDT&E
comparison to be exaggerated on methodological grounds in any
case, since it is handled differently from the other resource
categories: Inputs to the production of knowledge and prototype
systems are being measured rather than the outputs of this
"production" delivered to the military. Thuse RDT&E estimate
does not take into account what many would assume to be very low
productivity on the Soviet side.
The Agency analysts themselves are far from pleased with the
estimate and with the underlying methodology, and in the last
several years some work has been done on alternatives to replace
it. One new approach would start from an inventory of known
major R and D facilities, developed and tracked in part through
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imagery, and then on the basis of manning factors produce an
estimate for the labor force. Multiplication by an appropriate
set of wage rates would generate a wage bill, and this would be
scaled up to a total expenditure figure for the known facilities
from evidence about the ratio of wage bills to total expenditure
in various kinds of facilities. Work on this methodology has
proceeded very slowly, because of the lack of enough analysts to
allocate to it, and it seems unlikely that much will be done soon
to put it into operation.
Still another new methodology is under development. A
contractor study has been underway for several years to determine
whether it would be possible to estimate dollar costs of the R
and D programs that would be required in the United States to
create particular weapons systems or particular technical
advances that have been identified in Soviet defense production
programs. If this approach succeeds, one of its advantages would
be the provision of estimates conceptually consistent with the
rest of the cost estimating methodology because it would generate
the dollar cost of what the Soviet military is getting--i.e. the
development of some system. Progress on this methodology will
probably be slow and it will be difficult to make it operational,
in the costing effort, since it can cover only R and D of major
systems. The sum of these major system R&D costs would have to
be blown up by some large factor (perhaps 100 percent or more) to
cover all R and D, and this would require careful calibration
with some correctly known total for a recent benchmark date.
Since the present series is based on a very different concept,
and since we are dubious about its validity even on its own
terms, splicing in numbers from this new methodology presents
problems. Even when the contractor is finished, then, it will be
some time before the new approach can actually be incorporated
into the estimating procedure.
Our overall conclusion on both ruble and dollar sides is that
this part of the CIA estimates is at a distinctly lower
professional level than the other major components. The method
used may well result in exaggeration of the rate of growth of
total Soviet military expenditure and of its size relative to
that of the United States. Considering the importance of this
estimate, it is the area most urgently in need of improvement.
E. The Burden of Defense
As indicated earlier, the chief purpose of calculating the
ruble cost of Soviet defense activities is to measure the burden
of defense on the Soviet economy in the form of the share of
total resources allocated to defense. This indicator of defense
burden has become one of the most widely misunderstood and
heavily criticized products of SOVA's military economic
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analyses. The confusion and criticism stem from the very special
nature of the measurement and perhaps from the manner in which
the results have been communicated inside and outside the
government.
The defense burden is calculated as a ratio of Soviet defense
expenditures to Soviet GNP, with both numerator and denominator
expressed in factor-cost adjusted constant 1970 rubles. Factor
cost adjustment is a statistical procedure that presumably
eliminates some or most distortions in the measurement of cost of
resources stemming from the arbitrariness of the Soviet price
system. It consists of estimating, removing, and reimputing, as
appropriate, taxes, profits, and subsidies in Soviet economic
accounts, both civilian and military.
There may be inherent shortcomings in these measurements as
presently defined and estimated by SOYA. The recomputations and
corrections necessary to make both defense expenditures and GNP
conform to an adjusted factor cost basis introduce some
uncertainty, particularly in the reconputation of profits in the
defense industry. Also, the current methodology does not
consider the cost of possible direct and indirect subsidies built
into 1970 prices of industrial inputs (including possible
favorable foreign-to-domestic ruble exchange rates for
intermediate and final products in Soviet imports).
Apart from this possible estimating error and in its own
specific terms, the SOVA measure of defense burden is well
defined and well executed. However it has been argued that
adjusted factor cost, although an improvement over the Soviet
established prices, is still an incomplete measure of the
opportunity costs of Soviet military activities. This argument,
as it is usually developed, actually consists of two charges
against the current estimates of burden:
1. The burden of defense estimates are inadequate in scope
because they limit the coverage of "military" outlays to a set of
activities that is essentially the counterpart of those usually
measured in western defense accounting. But the USSR is a
different society and economy in which the boundary between
military and civilian activities is drawn differently than in the
West. There is a need to develop a much better evaluation of the
degree of militarization of the Soviet economy and, the range of
military activities not encompassed by standard measures. We
return to this subject in Section III B below.
2. The prices used in the current burden estimates to
aggregate quantities do not reflect the full costs of the
imposition of military priorities borne by the civilian
economy. Thus, one should add the opportunity cost of operating
distinctly different civilian and military systems of supply and
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distribution of material inputs and manpower (e.g., the priority
given to supplying defense industries with scarce inputs and to
allocating better trained university graduates to defense-related
productive activities).
The Panel recommends that SOVA initiate studies (done "in
house" or by outside contractors) to develop a broader concept of
the burden of defense on the Soviet economy which would measure
the real resource costs that are not captured by present
measures.
The above discussion relates to a western view of the burden
on the economy. As noted, CIA develops a "narrow" and "broad"
concept of the ruble value of Soviet military expenditure,with
the latter intended to approximate Soviet perceptions of the
burden. But there is clearly a need to extend the process
further. It is desirable to give much more thought to the kinds
of measures of military outlay that Soviet leadership might be
looking at. In this connection, we note that an experimental
effort several years ago developed measures of expenditure at
current and "comparable" prices, the latter a Soviet statistical
concept, to juxtapose against the CIA measure. It would be
useful to return to that exercise and develop it further,
including measures of production of military goods and possibly
military production by ministry. In this effort, CIA might seek
ways of cooperating with DIA, which has been studying ministry
production for some time.
The defense-burden ratios estimated by SOVA offer less
insight than they might into the Soviet leadership perception of
the burden because they are cast in terms of GNP rather than
"national income" (net material product), which is the much
narrower aggregate that the Soviet statistical system uses to
measure the total output of the economy.
As measures of burden in the 1980s, the CIA estimates at
ruble prices are also handicapped by using the prices of 1970, a
year increasingly remote from present concerns. If the price
movements for military goods have diverged from those for
civilian output, the burden measured in current year costs may
also diverge, perhaps increasingly, from the measure in 1970
prices. SOVA recognizes the need to develop measures in a more
contemporary set of prices. Programs are being developed to
change the valuation basis for the ruble estimate to a 1982 base,
1982 being the year of a major Soviet price reform intended to
bring prices into line with costs. Current plans include
contracting out for a study of the overall impact of the 1982
price reform and the preparation of price indexes, including
rice indexes for general purpose machinery
n
k
p
o
exploratory wor
and weapons. A small team in SOVA is preparing the data base of
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recent ruble prices of military hardware. The work seems to be
progressing satisfactorily, but a major commitment of analysts'
time will be required in 1984-85 when the pertinent Soviet data
will have been collected and the contracted studies completed.
SOVA has justified its continued use of 1970 prices by the
absence of sufficient information on Soviet prices and costs for
the later years of the 1970s. However, considering the volume of
individual prices accumulated since the 1970 base year, we wonder
whether crude price indexes could not have been developed from
this growing sample. We understand that prices for the most
recent years are not available in abundance, but a rough measure
of price change for several categories of procurement could
perhaps be obtained at least for the period through the mid-
1970s.
The change to the 1982 price base for estimating military
expenditures will require a new set of 1982 national income
accounts (Soviet GNP in adjusted factor cost prices) similar to
those for 1970. A preliminary estimate of 1982 GNP in 1982
prices is supposed to be started this fall and to be completed in
early 1984. The panel notes with regret that the SOVA team
concerned with Soviet national income accounts is losing its key
? analyst.
Shifting to a new price base will also enble SOVA analysts to
deal more effectively with a basic issue of the concept of the
1970 ruble-price measure of Soviet defense.
The 1982 update pointed up the possible gap between CIA
measures of the ruble value of Soviet defense and the volume of
resources actually expended on defense (even at "constant 1970"
prices). This is a corollary of the SCAM conceptualization of
costs, which measures the flow where goods and services are
procured by the military establishment. Especially in relation
to hardware procurement, the size of the flow of resources into
production at points further upstream in the process may not vary
directly with the flow to the military of the resulting output.
The post-1976 leveling off of procurement conceivably may have
been accompanied by a continued rise in the volume of resources
allocated to production of military hardware (even after
allowance for inflation), which resources, because of various
technical holdups, are not being fully converted into output
deliverable to the military.
As long as procurement seemed to be growing without
interruption and roughly in accord with the growth of thwhich is
infrastructure of weapons production, this uncertainty,
In the
in Agency's
may did
have not
been arise. a divergence
inherent
l970s, horuble wever, there estimate,
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last halo of
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between the value of procurement at constant prices and the
volume of real resources the economy had to devote to obtain that
flow of weapons. This distinction must be made clear in SOVA's
presentation of the estimates to the policy community.
Transfer of the CIA's price base to 1982 should help provide
a better feel for the way in which contemporary prices, relative
to those of 1970, affect burden calculations. However, only a
continuous time series of current-price calculations of defense
expenditures would provide an indication of the degree to which
Soviet spending on defense was changing at the same or different
rates than the constant-price CIA measure.
F. Ruble Valuation of U.S. Expenditures
Comparisons of economic aggregates such as Soviet and U.S.
military expenditures most often generate an "index number
effect." If the relative quantities of the items entering into
each aggregate and the comparative prices of those items differ
between the two countries, the relative size of the two
aggregates measured in one set of price may differ from what it
is measured in the other set of prices. The existence of this
effect, its strength and the direction of difference in the
depend on the strength and sign of the correlation
measures
,
? between price relatives and quantity relatives. It must also be
emphasized that neither of the two possible comparisons between
the two countries' aggregates is uniquely correct; they are
equally legitimate and should be used in tandem.
When two economies are so unlike with respect to basic
scarcity relationships as are those of the United States and the
Soviet Union, the index number effect would be expected to be
strong at the level both of GNP and major subaggrega,tes. The
literature on U.S.-Soviet comparisons has emphasized the
existence of this effect, and practictioners in the field expect
it to show up strongly in all aspects of economic comparisons of
the two countries. The CIA's dollar comparison, used alone as a
measure of how large the Soviet effort is compared to ours, has
often been criticized on the grounds that it fails to allow for
the index number effect.
In response to this criticism, the CIA supplements its
primary comparison in dollars with a comparison in which both the
Soviet and the U.S. programs are costed in rubles. Because of
the difficulty of providing the U.S. quantities and estimating
what U.S. items would cost if produced in the USSR, this can be
done only imperfectly. It is obviously not possible to employ in
reverse the method used in estimating dollar costs of Soviet
equipment, i.e. asking Soviet contractors to estimate what it
? would cost to produce items of U.S. equipment in the USSR.
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?
Therefore, it is necessary to estimate relative Soviet-U.S. unit
values in some other way. Unfortunately U.S. physical quantities
for individual items of procurement are not available; CIA must
work with U.S. dollar aggregates. The task then is to develop
average ruble-dollar ratios applicable to the U.S. product-group
values from the relatively few individual ruble-dollar ratios
available.
Nevertheless, the Agency has found it possible to do a
reasonably detailed calculation, and the results suggest that the
index number effect is not serious for defense: while the dollar
comparison shows the cost of Soviet programs as 145 percent of
the U.S. outlays, a ruble comparison narrows the difference only
to 125 percent. This result is explained by the fact that both
sides tend to procure forces in response to military rather than
economic criteria, as illustrated by the finding that man-
hardware ratios within particular Soviet missions are similar to
those in the U.S. forces.
There is one issue with respect to the calculation of
procurement that has drawn extensive criticism from an academic
scholar. Given available ruble prices for some procurement items
and corresponding dollar costs, individual ruble-dollar ratios
are established. Averages of ratios are then applied to the
dollar values for groups of U.S. expenditures within which the
samples of ruble-dollar ratios fall. For example, ruble-dollar
ratios for tactical aircraft are averaged, adjusted in a way to
be described below, and then applied to U.S. expenditure on
tactical aircraft.
The resulting estimates of U.S. expenditure in rubles have
been criticized by Professor Franklyn Holzman as biased downward
by improper weighting. That is, Professor Holzman claims that
since ruble-dollar ratios are only applied to aggregates of
values, such as tactical aircraft, the calculation is degraded
because individual equipment quantities are, in effect, weighted
by dollar prices instead of ruble prices, as they should be. He
is correct in principle, but CIA attempts to correct for this
deficiency. For example, with respect to tactical aircraft,
since the U.S. acquisitions include aircraft of a considerably
higher technological level than those in the sample, and with a
presumably higher ruble-dollar cost ratio than the older types,
CIA raises the average ruble-dollar ratio by a judgmental, though
significant, amount to take account of the fact that the average
is unrepresentative of newer models that the Soviets would
presumably find more costly to produce. There is little evidence
as to how large that adjustment ought to be, and the judgment is
essentially speculative. (See also our discussion of a related
issue in Section III D.)
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For some other resource categories it seems likely that the
index number problem is much less serious, and it is possible to
apply average ruble-dollar ratios to the category values, like
personnel costs. In converting RDT&E, the average ruble-dollar
ratio is adjusted by 20 percent on the grounds that much of U.S.
R&D activity is more sophisticated than the Soviet, and could be
replicated in the USSR only at a relative cost higher than that
of the activities both countries perform.
Despite our belief that the index number spread is probably
narrow, as CIA contends, work in this area appears to be
conducted at a low level of intensity. Little effort has been
made to break down the U.S. budget outlay aggregates so that more
disaggregated ruble-dollar ratios can be used. Also, the ruble
value of U.S. expenditure receives distinctly secondary attention
in published CIA analyses. Moreover, the Agency treats the
defense index number problem differently than it does that for
the other end uses of GNP: Both ruble and dollar-based ratios of
other end uses are presented and then averaged, whereas the
defense ratios are rarely averaged, and the analysis of
comparative defense costs proceeds almost exclusively on the
basis of the dollar values. Lack of interest on the part of
government customers helps explain but does not really justify
the situation.
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III. VALIDITY AND RELIABILITY OF THE ESTIMATES
A. The Strategic Cost Analysis Model
SCAM consists of two parts. The first is a data base
developed according to a carefully designed set concepts. The
data include information on the physical quanies the
arfly as
various items used in theasSoviet
stockslfromrwhichcflows can be
annual flows, and partly past and future, the
derived. Covering a total of thirty years, data base includes the costdbelerr
ingnisedcfore
peach item, such ruble tprices here is a large set of price indexes for
parameters. Finally,
adjusting prices and price ratios from their heterogeneous
original dates to the common-year price basis used in the various
estimates.
The second part of the model is a programming componentnfor a manipulating eS this
produced in generate as total
subaggre9at produced
categories. expenditures for
resource dollars, and
i n l and and in
individual programming
dumissions
ins simple routines for checking consistency
t
con
a
component also con
of various kinds of information in the data base.
for
SCAM supplemented with several auxiliary programs SCAis
?
feeding the SCAM data base proper with information coming from
the analysts working on various accounts, such as manpower and
construction.
The programming component ofSCAM currently h as serious
deficiencies. It is an inflexible ysc ent
processing rather than permitting on-slianebilnatekraoctivsyestem that
relationship with analysts;
cannot accept modifications. Soabyrprogramming,tandtmustabe
recordkeeping process are not covered
handled outside the model. Examples
res are ff oreign trademits, and
calculations of uncertainty measures of the
recordkeeping on items withdrawn from invento .
rn stored in
documentation of sources and estimating P reseno system the the model itself. fficientldetailttoumakehit possPble to
is documented in SU
continue to operate if arealimitedleandrinvolvenmostly
personnel. The checking routines in series, and
such mechanical tasks as finding sharp checks within
making some microconsistency
the model (for example, directing attention to a series that
remained constant or grew at aantndaaelfor sosefnumber of
,years) have to be done by inspection, consistency with outside data are the responsibility of the
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individual analyst. The model does not now contain programs to
support experimentation with stock values, life cycle costs, or
variations in learning curve parameters.
These deficiencies are more an inconvenience than a direct
interference with the reliability and accuracy of the estimates,
but improvements in the model would make the estimating process
more flexible and efficient, and would help ensure timely
updating and revision of the estimates. The power to do a great
deal more consistency checking would be important in ensuring
that errors did not creep in unnoticed. There are some
capabilities in the present system that have not been fully
exploited (such as the use of regional identifiers), but in
general it has reached the limits of its capabilities and needs
to be remodeled. The accounts branch is now working with a
contractor to develop a follow-on model that will eliminate most
of these difficulties. The panel believes that it important that
this work go forward.
B. Comprehensiveness of the Estimates
One of the primary shortcomings of any building block
method of estimating an aggregate is the always present
possibility of missing some elements. Unfortunately, because of
the deficiencies of Soviet data, the Agency was not successful in
developing an acceptably accurate methodology for estimating
total Soviet defense spending independently of the building block
method. The SOVA staff, however, is alert to the need to ensure
the maximum possible coverage of all main resource category
components. Completeness of coverage in all but RDT&E is sought
through continuously updated order-of-battle of the Soviet armed
forces, enumeration of quantities of major systems with the aid
of all-source intelligence, and application of norms or analogues
for less observable but also less important elements. The only
improvement in this regard we can suggest is developing a more
rigorous methodology of tying together production, changes in
inventories, losses, and exports of all major weapons.
To test the plausibility or the accuracy of values derived by
the building block method, it would be highly desirable to have
independently estimated ruble values of Soviet defense
expenditures or of the major components, such as procurement or
personnel cost. A number of possible approaches and
methodologies based on published Soviet statistics have been
developed in the past by the Agency, other groups in the
intelligence community, and by academic researchers, but so far
with little, success. Briefly, these approaches can be grouped
as follows:
? 1. Total defense expenditures are estimated on the basis of
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various unexplained and unidentified residuals in the Soviet
state budget, combined with the published "defense" budget and a
share of expenditures on "science."
2. Total defense expenditures are estimated as the residual
in net material product, the Soviet measure of "national income,"
after all identifiable non-defense expenditures have been
removed.
3. Value of procurement of military hardware is estimated as
the residual in the gross value of the output of machinebuilding
and metalworking (MBMW) after all non-defense final and
intermediate uses have been estimated and removed.
4. Value of procurement of military hardware placed in
stockpiles is estimated as the residual in net investment in
Soviet net material product after all non-military investment has
been estimated and removed.
5. Value of procurement (output) of military hardware is
estimated on the basis of plan fulfillment reports by various
non-military ministries and estimated total output of MBMW.
6. Value of exports and imports of weapons is estimated from
various product and country residuals in the published Soviet
foreign trade listings.
Most of these approaches share the basic weakness of any
"residualizing" method--the estimates are affected to an unknown
extent by cumulative errors generated by the inability of the
estimator to accurately separate military from non-military
elements. Thus, none of the numerous studies done in the past
produced acceptably accurate estimates.
SOVA has in the past intermittently evaluated studies based
on alternative methodologies undertaken by specialists outside
the Agency and explored the feasibility of such methodologies "in
house". Reassessment of these studies was outside the purview of
this panel, but we did interview several outside specialists
associated with these approaches, seeking their views of the
Agency's building block method and any insights their own work
could provide in this area. These interviews did not indicate
significant progress in the outside efforts.
Poor results of earlier studies within the Agency, the
tenuous nature of conclusions reached in similar studies
undertaken by outside specialists, and staffing problems seem to
have resulted in very low priority for work on alternative
methodologies within SOYA. This is regrettable and should be
corrected, as the set of alternative methodologies has the
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potential to provide at least a partial verification test for
estimates derived by the building block method.
The recent publication of the Soviet handbook on the state
budget for the 1976-1980 period makes it possible to work through
the budget residual method again, particularly as we now know
more about the intricacies of the republican-union divisions in
the budget. Thus, it would be useful to check whether the ruble
estimates of defense'expenditures (adjusted roughly for post-1970
price changes) could fit under various unidentified residuals in
the union part of the Soviet state budget.
However, the issue of the comprehensiveness of the Agency's
coverage of Soviet defense costs must be raised in a wider frame
of reference, particularly when the estimated defense
expenditures are used to assess the economic burden of defense.
The measurement of the defense burden currently performed by SOVA
is defensible in its own terms. But even with a "broad"-
definition defense numerator the burden definition is still
narrow, as we noted in Section II E. The Soviet economic system
differs from the U.S. and other market economies by a much higher
integration of military and para-military activities with the
civilian economy.
A number of economic activities directly related to the
Soviet defense effort are excluded at present from SOVA's concept
of the defense burden. Some of these activities are difficult to
quantify, others could be incorporated with SOVA estimates.
Students of Soviet defense-related activities have identified the
following items (in descending order of "quantifiability")
i
Civil defense ,
Costs incurred by industrial enterprises not
subordinated to the Ministry of Defense to maintain
reserve facilities for expansion of defense output
(including trucks and other means of transportation
registered with military units which could be
transferred to the military forces when required)
Other costs associated with the maintenance of the
mobilization potential
Additional construction and capital maintenance
dictated largely by military needs (use of highways
as landing facilities for aircraft, radio and other
communication networks, etc.) The BAM railway is
believed to have an important strategic as well as
civilian purpose.
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-- Costs of additions to and maintenance of strategic
reserves of non-military supplies (grain, POL).
-- Costs incurred by the KGB and GRU for covert
procurement of defense-related Western technology.
As can be easily seen from this (by no means complete) list
the economic costs associated with defense efforts not captured
by SOVA estimates seem high and, if measured, might add several
percentage points to the defense burden. On the other hand, some
military expenditures now included in the CIA estimates provide
partial benefits to the civil economy. For example: general
education and health outlays on the armed forces improve the
productivity of. the demobilized recruits when they reenter the
labor force; Soviet military personnel are regularly used to help
bring in the harvest; Soviet construction troops have built
Olympic stadiums or other objects of civilian use. These civil
benefits should, in principle, be subtracted from the enlarged
estimate of total military expenditure to obtain a more
meaningful measure of burden.
While the Soviet economy is surely more highly militarized
than that of the United States, the problems discussed have some
parallels in this country. Examples of essentially military
outlays not now counted in U.S. measures of military expenditure
are civil defense and emergency mobilization planning. There are
also activities of an apparently civilian character that have
military components or potential military use. Thus, in a
comparative context, the defense numerator of U.S. burden
calculations would also have to be reexamined, for both additions
of nominally civil costs that are in fact military and
subtraction of identified military costs that produce civil
benefits. Clearly, however, the most important question concerns
the degree to which the Soviet burden is understated by current
measurements.
It is not intuitively obvious where to draw the line between
military and civil activity in either economy, but this should
not preclude a serious examination of the issue. A logical first
step is development of the concept to be followed by an attempt
at estimation of the relevant magnitudes.
C. Robustness of the Estimates
As indicated in the introduction, the accuracy of
estimates may be gauged by comparison with the external referent
the estimates are supposed to replicate. In principle, neither
the dollar nor the ruble value of Soviet defense in the SCAM
model has such an empirical referent; except for the ruble value
in 1970, both are purely intellectual constructs. The components
of these aggregates may be evaluated by tests of plausibility or
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even, in a few cases, accuracy as defined here. However, the
overall aggregates themselves are not easily assessible in these
terms.
L. 11V r% lJ C l l Y,
relating to the total value of defense expenditures at particular
times and concluded that these were broadly consistent with
SOVA's estimates. As the paper notes, there is considerable
uncertainty about the coverage and price basis of the Soviet
statements. "The most meaningful information" is said to come
from a former Soviet economist who claimed to have seen a summary
statement of defense expenditures relating to 1969 and 1970 at
the USSR Central Statistical Administration. These are years for
which CIA estimates may expect to approximate closely Soviet
figures in current prices.
Otherwise, the only major test of accuracy that can be
applied is robustness--insensitivity to change through successive
estimating efforts. Each year a new 30-year series is produced
and we can look back to see how the totals and subtotals have
changed with each succeeding estimate. The following material
briefly summarizes the results of a test of robustness:
? 1. The Ruble Estimates
d
il
f
e
a
By this test the ruble estimate of Soviet defense
dramatically and publicly in 1975-1976. For the ruble estimates
of procurement, the series calculated after that date are
essentially different from those presented before.
Coincidentally, the RDT&E methodology changed at about the same
time. However, while the RDT&E estimates composed since the mid-
seventies appear almost perfectly robust, this is si,mply because
of the stagnation of the estimating procedure for this
category.
For the remaining categories, we did not have complete sets
of data at our disposal but the missing years are sufficiently
few in number that several judgments can be made confidently:
a. Consider the several annual estimates, made after
the big revision, of the individual resource categories in the
year 1970. The ratio of the maximum to the minimum values of
these several estimates was 1.24 for investment, 1.13 for
operating and 1.12 for total expenditures (including RDT&E).
That is, successive revisions of the same datum in the major
components of the total yielded a moderately narrow range, so
that the range for total outlays seems acceptably small.
b. The range tends to increase in later years; e.g.,
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the investment ratio is 1.29 for 1976 and 1.3 for 1982. In
considerable part, this simply says that recently made estimates
applying to recent years exhibit a naturally greater degree of
changeability than estimates for an earlier year on which very
considerable attention had been focused previously. In addition,
however, the investment range is associated with the fact that
estimates made in year t for the years t, t-1 and t-2 are colored
to greater or lesser degree by inclusion of the leading edge of
the costs of systems that have not yet been deployed--in short,
what appear to be realized outlays are in part assumed costs of
future systems.
c. Increase in the range of successive estimates is
also observed for rates of growth. With respect to estimates for
the years 1971-75, the average annual rate of growth of
investment (to take an important category) varied among the
different estimates by as much as 2 percentage points; for 1976-
1980, the variance was as much as 4 percentage points. The
explanation is, of course, exactly similar.
d. In general, there is a tendency for the absolute
value of any resource category to increase with successive
ost-1976 sample of estimates is too
th
e p
estimates. However,
1979, and 1982)
small (there are only four--made in 1977, 1978,
to assess the durability and significance of the apparent
h f ontribution to this effect so
c
h
is
e L. ie
tendency, especially as t
far has been the revision of ruble-dollar ratios carried out last
year. This revision introduced a means of estimating uncertainty
and minimizing bias resulting from uncertainty.
e. Among the resource category components of the total,
construction was the most volatile; the 1970 entry quadrupled
between the estimates made in the early 1970s and and those made
in 1982. Last year, the methodology changed sharply, as
explained earlier.
Consequently, on robustness grounds alone, the Agency's
published self-evaluation seems supportable: the estimates are
best for the early 1970s and particularly 1970; total outlays are
more reliable than the components, which vary sharply in the
confidence that can be reposed in them.
2. The Dollar Estimates
The sample available to us was different from the sample
of ruble estimates for technical reasons. On the other hand,
since there was no dollar revision to match the ruble
"revolution" of 1976, we should be able to compare estimates made
throughout the 1970s. The following tabulation helps sum up the
results:
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Dispersion in the Successive Annual Estim*ates of the Dollar
Cost of Soviet Defense
Estimates Made During 1971-82 for
1970
1975
1980
Number of Estimates
12
7
4
Ratio of Maximum to Minimum Value
Total Outlays
1.19
1.11
1.04
Investment
1.64
1.19
1.06
Operating
1.27
1.11
1.03
Ratio of Maximum to Minimum Value
Four Series Having 1980 Entry
for
Total Outlays
1.06
1.05
1.04
Investment
1.19
1.16
1.06
Operating
1.03
1.04
1.03
*On a common price basis of 1979 dollars.
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Here there appears to be greater scatter for 1970 than for
1975 or 1980. In part this is due to the larger number of series
available for 1970, but the tendency appears to persist even when
we use only those series that have a 1980 entry. The more
important explanation, however, is that the estimates for the
different years are not always comparable in the classification
rules they used--e.g., with respect to the classification of
spare parts alternatively as 0&M or procurement. There appeared
to be some confusion because of this in the first half of the
1970s. After consistency was imposed on the classification
rules, the degree of scatter fell off sharply.
As with the ruble estimates, there is considerable difference
in volatility among the resource categories; construction is
again the outstanding example, with a sharp upward rise.
However, successive estimates did not change the direction of
movement over time. Surprisingly, there appears to be a downward
pattern in the successive estimates for personnel costs in 1970.
On the whole, therefore, the dollar cost estimates have stood
up well to successive reestimations, especially if account is
taken of the changes in classification that occurred in the first
half of the past decade.
D. Biases and the Critics
Bias is usually associated with systematic, as
distinct from random, estimating error. In this section we
examine the claims of a number of critics of the CIA estimates
that the latter indeed err systematically in particular
directions. Both the dollar and the ruble estimates have been
charged with bias and in both directions. We have not attempted
to assess all the criticism we know of, only those of some
significance. One cannot assume that the critics cancel each
other out and that the estimates must be "about right."
Nevertheless, the panel's judgment is that the critics' charges,
in the main, are not justified. Our comments are subdivided by
the category of CIA estimate criticized:
1. The Dollar cost of Soviet Defense
Professor Franklyn Holzman has argued in print that the
dollar costs are biased upward because of overvaluation of
military wages and equipment prices. Both charges were based on
insufficient information on CIA procedures. Professor Holzman
thought military wages overstated because U.S. wage rates were
too high for the less skilled, less educated Soviet military
cohorts. However, the SOVA costing model does not attempt to
replicate the capabilities or productivity of the Soviet force,
but only its size and distribution by military function.
Similary, Professor Holzman's belief that there was a systematic
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upward bias in the valuation of Soviet equipment was based on
some misleaing CIAtcostinglaimedbat
also o on n a a m
performance comparisons.
Criticism of the dollar estimates because they apply U.S.
military wage rates to Soviet conscript personnel is frequently
heard in the United States. One of the most popular complaints
alleges the absurdity of a situation in which a U.S. pay raise
automatically increases Soviet "expenditure." Part of the
problem is the failure to recognize that what is being measured
is the cost *in the United States at base year prices of raising
and maintaining the Soviet force. Thus, if the dollar prices
used in the estimate are those of the year in which the pay raise
occured, it is entirely proper that the dollar costs of Soviet
military programs should reflect the new U.S. pay rates.
Moreover, these rates would apply to every annual entry in the
series, thus leaving the growth rate of personnel cost largely
unaffected. If the base year of the dollar cost series were an
earlier year, the military pay rates used to aggregate military
manpower would be those prevailing in that earlier year and not
the later, higher rates. The critics are also unaware that the
ratio of Soviet to American personnel costs in dollars is
manower-
of military
i
son
considerably lower than a compar
becauserthe CIA
quantities and average pay rates would indicate,
to functions
use t officers Soviet
armed U.S. foranks to rces tend the
dollar calculation n Soviet assigns
where
personnel l and
the U.S. force would use noncoms.
A number of critics have argued that the dollar estimates are
downwardly biased. Most prominent among them is Professor Steven
Rose i- e. We have already referred to his main charges--
failure to take account of intervintage technological change and
improper adjustment of base year equipment prices for learning in
production. We have satisfied ourselves that Professor
Rosefielde was misinformed on the first issue (however, see
immediately below). The second, we believe, is arguable but we
find the CIA position a defensible interpretation of production
index theory.
It may be useful to add a few words here on the question of
intervintage change. The effect of failure to take account of
such change in cost estimating models is not only to lower the
level of a constant dollar series but also to understate its
growth rate. Professor Rosefielde believes, on the basis of
various calculations by other observers, that U.S. military
technology improved at an annual average rate of about 6 percent
in the 1970s. He asserts that the rate of technological
despite the fact that
in the USSR
,
improvement was even faster
? Soviet design philosophy aimed for incremental change rather than
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state-of-the-art development. His calculations indicate that
Soviet technological improvement cumulated to a 252 percent
increase in the 20 years 1961-1980, against 121 percent for the
United States. Professor Rosefielde also states that if the CIA
estimates do in fact incorporate an allowance for qualitative
change, the rate of Soviet technological improvement was even
faster than the above numbers suggest.
Apart from some unpublished, vague and judgmental assessments
by others, the basis for Professor Rosefielde's belief in the
higher rate of Soviet qualitative change is the difference
between the rate of growth of the CIA ruble procurement series
and the rate of growth of the series calculated by William T. Lee
several years ago, which was derived by calculating a presumed
hardware residual in announced Soviet values of machinebuilding
and metalworking output. The panel has not examined Mr. Lee's
calculations in detail. However, it is impressed by the serious
methodological objections to his estimates raised by several
observers, inside and outside CIA.
The plausibility of Professor Rosefielde's estimates of
Soviet technological change may be roughly gauged by calculating
the change in implied ratios of Soviet to American quality
levels. If one believes that the qualitative level of Soviet
weaponry was, say, one-third below that of U.S. weapons circa
1960, using Professor Rosefielde's quality growth rates means
that one must also believe that the average level of Soviet
weapon quality is now higher than that of the U.S. On the other
hand, if one believes that Soviet quality is now at least one-
third below that of U.S. weapons, the implicit on of Professor
Rosefielde's series is that the 1960 ratio must have been
considerably less than half. The paradox is even sharper
because, as indicated, Professor Rosefielde suggests that his
estimate of the rate of change in Soviet technological improvemnt
may be understated.
Finally, we should note that while Professor Rosefielde
accused the CIA of using fixed vintage CERs in his published
work, he has recently amended his charge: he now acknowledges
that revisions are made, but he asserts that the revisions are
insufficient to deal with the problem.
2. The Ruble Value of Soviet Defense
Professor Holzman has contended that the ruble estimates
in 1970 prices understate the rate of growth primarily because
the ruble-dollar ratios used to convert much of procurement from
dollars to rubles are averages for highly aggregated elements and
that these elements represent 1970 dollar values.
"Subaggregation in 1970 dollars reduces the rate of growth of
these subaggregates because it puts a relatively low price on the
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fast-growing modern Soviet weaponry and a high price on the
relatively constant-sized army." We referred to this problem as
it applies to estimating U.S. defense costs in rubles (Section II
F). As we noted there, however, Professor Holzman is largely
mistaken: it is true that in the absence of ruble prices or.
ruble-dollar ratios for every item of procurement, the use of
average ruble-dollar ratios automatically implies subaggregation
in dollars at some level. However, (a) the subaggregation takes
place at rather disaggregated levels; (b) it does not take place
in 1970 dollar prices but in differing price levels depending on
when the calculation is made; (c) an adjustment is made to the
average ruble-dollar ratios to account for greater or lesser
technical complexity in the items with unknown ruble prices or
ruble-dollar ratios. These adjustments are somewhat speculative
and may have considerable estimating error, but they tend to rule
out the probability of systematic Has in the growth rate of the
series.
A number of observers in and outside the government have
contended that the level of the ruble estimates is biased
downward. The substance of some of these arguments--particularly
by Andrew Marshall. Director of Net Assessment of the Department
of Defense, of DIA, or Major General William
Odom, Assistant Chief of Staff, U.S. Army--relating to the scope
of activity coverage of the estimates, has been discussed in
Section III B above. Other criticisms concern the adequacy of
the CIA's ruble prices as measures of real opportunity cost.
This issue was discussed in Section II E. We may note again that
the panel found merit in some of these critiques and has made a
number of suggestions to deal with them.
Professor Rosefielde is also one of the strongest critics of
the ruble estimate: he charges that both the level and the rate
of growth are downwardly biased. His criticism with respect to
the Agency's estimates made after the 1976 revision are
essentially reflections of his charges against the estimates in
dollars. Since the panel has not reviewed the 1976 revision, it
decided not to evaluate Professor Rosefielde's critique of the
pre-revision estimates or the validity of the Agency's
justifications for the revision.
3. Comparisons of U.S. and USSR Defense: The International
Index Number Pro em
As noted earlier, comparisons of value aggregates in one
country at different times or in two countries at a single time
present an "index number problem," in that use of different price
weights inevitably yields different ratios of comparison. Thus,
U.S. and USSR defense may be compared in rubles or in dollars;
both are legimate yardsticks, but the answers will be
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different. CIA performs both calculations, but Professor Holzman
is sceptical that the spread between the USSR/U.S. ratio in
dollars and the complementary ratio in rubles can be as small as
CIA claims it to be. Apart from his criticism of the CIA dollar
costs of Soviet defense, Professor Holzman belives that CIA's
estimate of the ruble value of U.S. defense is biased downward,
for two reasons:
(a) U.S. weapons that the Soviets are incapable of
producing because of technological inferiority are costed by CIA
in rubles as if the Soviets could have produced them and are
valued by means of ruble-dollar ratios applying to much less
advanced equipment. Professor Holzman has a point, in that
products unique to one economy in a two-economy comparison pose
difficult measurement problems. However, the conundrum is faced
in all international and intertemporal calculations, and usually
ad hoc adjustments are undertaken to resolve the problem. CIA
does the same, adjusting the relevant, category-average ruble-
dollar ratios to compensate,at least in part, for the U.S.
technological superiority.
(b) The same problem ofsubaggregation in dollars before
conversion to rubles that downwardly biases the rate of growth of
the ruble value of Soviet defense also leads to systematic
understatement of the level of the ruble cost of U.S. defense.
The response to Professor Holzman on this charge is the same as
that indicated with respect to the growth rate of Soviet defense
i n rubles.
Professor Holzman, however, is justified in
complaining that ruble U.S.-USSR comparisons occupy a back seat
to the dollar comparison, whereas both are in principle equally
legitimate measures of relative size. He is also correct in
observing that whereas the CIA U.S.-USSR GNP comparisons usually
average the ruble-based and dollar-based Soviet-to-American
ratios by the geometric mean, CIA almost never averages the
counterpart defense ratios. However, these issues are primarily
matters of the use of CIA estimates rather than of the
methodology itself, thus outside the mandate of this panel.
4. The Burden of Soviet Defense: The Intertemporal Index
Number Prob em
In additon to his criticism of the ruble Soviet defense
series, Professor Holzman has also charged that the burden
calculation, dividing Soviet defense by Soviet GNP, both valued
in 1970 factor costs, is upwardly biased. He is correct in
asserting that the burden in any year ought to be calculated in
S the prices of that year, because that set of prices is the only
one reflecting the opportunity costs of the particular defense
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allocation. As Professor Holzman is aware, the difficulty of
obtaining contemporary prices was the reason for maintaining the
series in 1970 prices. Further, he is convinced that using 1970
rather than 1980 ruble prices to measure the burden in 1980
exaggerates the calculated ratio, because the costs of military
procurement would have declined much more rapidly between the two
dates than the prices of other components of GNP. The panel
believes arguments can be adduced in either direction. Morever,
Professor Holzman appears to identify rapid price decline with
rapid modernization. This may not necessarily be true, but we
shall have to wait until the CIA estimates are coverted to a new
price basis to determine whether contemporary prices lower or
raise the burden calculation relative to that in 1970 prices.
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IV. MANAGEMENT
When the regional reorganization of DDI took place, one of
the most prominent changes affecting the Soviet area was the
dissolution of the Military-Economic Analysis Center (Division)
and distribution of its functions among two divisions of the new
Office of Soviet Analysis. Roughly coincidentally, a reduction
in size took place. At the beginning of 1983 there were
approximately 28 analysts counted as involved in the estimating
process, although the full time equivalent number of analysts was
probably 15-20. The counterpart number of analysts in 1981 was
35, almost all of whom were assigned full time to this activity
(including 2-3 working on China). Also, many of the senior
managers and analysts of the MEAC period were promoted or
reassigned and thus were no longer involved in military
economics.
The reasons for these changes are various and
understandable. The reallocation of resources away from military
economics no doubt paid off in the sense that researchers were
made available for other tasks with high visibility and priority.
But these changes did have a noticeable impact on the intensity
and quality of the work on military economics, as suggested by
the experience of the 1982 update of the military expenditure
estimate. Under the best of circumstances (had MEAC or its
equivalent been continued' and at approximately the 1980-81 level
of effort), the 1982 update would probably still have
concentrated on some aspects of the task and coasted on others in
which major modifications had recently been completed, as for
example, the methodology of estimating construction. Given the
nature of the organizational changes in 1981-82, this narrowing
of focus and an inclination to live off past capital, was
accentuated.
We believe that the new arrangements disrupted the update and
affected its quality in several important ways:
1. The 1982 update was distinctive because it was
prolonged. Ordinarily, these annual exercises have taken about
four months from start to finish. According to the formal
schedule issued in November 1981, the 1982 update should have
started in mid-December and been three-quarters complete by mid-
April. In fact, it took the better part of 8 months, from
February to August 1982, to produce the first version of the
ruble paper.
2. It was characterized by a somewhat erratic progression of
the normal stages of the update. The sequence usually follows
the order: forces, costs, indexes, rubles, with relatively even
distribution of time segments. In 1982, the formal phase of
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force updating lasted more than three months, the cost phase some
two to three weeks, the index phase a surprising six weeks, and
the ruble phase a further two-plus months. This resulted in part
from the fact that while the order of stages was formally
preserved, it was frequently necessary at later stages to redo
earlier parts of the estimates. Such a process is by no means
unprecedented, but the extent to which it was required in 1982
was unusual.
3. This affected the quality control inherent in the normal
process of orderly, staged updating. At each point of the
update, the parameters of the next stage are kept constant, and
this is an important way of maintaining a watch for anomalous
patterns developing within each stage. Because the stages were
to a considerable extent intertwined in the course of the update,
that element of quality control was difficult to maintain.
4. An additional problem of quality control in 1932 was the
decentralization of the process of estimation, resulting in the
lack of a clear central focus and control point.
5. According to the memo by D/SOVA initiating the process,
the 1982 review was to cover the forty-four year period, 1951-
1994, to give the force analysts an opportunity to review our
historical base... [and] to reinforce the data for 1989 by
capturing follow-on systems and costs which tend to
unrealistically fall off at the end of the estimate." But this
apparently depended on the forces review being conducted by the
old NFAC projections working groups, which were supposed to begin
their part of the update in the last half of December 1981.
Unfortunately, the projections working groups were moribund this
past year and did not contribute to the updating process.
6. The final long delay in the completion of the ruble part
of the estimate was due to concern about the validity of the
estimate rather than to organizational problems, and indeed The
demonstrates one of the advantages of the new arrangements.
questions raised by the slow growth of procurement revealed in
the 1982 update could be addressed and resolved within SOVA
against the background of all the Agency's work on Soviet
economics.
The 1982 update clearly revealed the toll on military
economics that had taken place in the course of the
reorganization. The military economic effort, with its inherent
complexity, sophistication, and requirements for understanding by
those who operate the models taxed the reduced and relatively
less experienced human resources available. There were now fewer
and many of them were new to the
t
em
analysts to work the sys
business; the models in the system were not well understood; and
there were important competing demands, especially in the Defense
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Industries Division. All this, plus the lack of experience in
doing a decentralized update with reduced staff, resulted in the
characteristics already noted.
Some of the difficulties revealed in 1982 can probably be
repaired within the existing framework. The working groups can
presumably be reconstituted and their efforts made more central
to the whole process. The analysts who were new in 1982 have now
accumulated considerable experience and fewer delays will ensue
on this account. However, there remain two longer term problems
whose resolution involves larger resource issues:
1. Whatever the size of the effort that will be undertaken
this year and in the future, the panel believes that one of the
clear losses from the reorganization is that of a central
directing focus. The military-economic estimating process is too
diverse and complex to be left to operate essentially on its
own. Central direction is needed, in the first place, to
maintain control over the speed and quality of the annual
updates. It is also needed to provide a focus for evaluating new
findings and to take responsibility for reconsidering
conventional wisdom. The panel sees no alternative to providing
more focused management. How that should take place is, of
? course, something that must be left to the office director. It
seems to us that central direction will benefit the operation
most if it is continuous rather than ad hoc or occasional.
2. The military economics effort inherited from MEAC was a
large complex system that required substantial manning and
vigilant control to maintain quality. Present resource
constraints raise the question of options for future maintenance
and development of the estimates. One option would be to attempt
to recreate essentially the conditions that prevailed in 1980-81
regarding mode of operation and level of resources.
Alternatively, it would be necessary to review the mode of
operation to permit functioning within reduced resource limits.
Several ways of cutting the costs of the annual updates have been
suggested, including doing updates less frequently, cutting back
the number of years being reviewed or staggering the scope of the
annual update--e.g., covering the period before 1960 or 1965
every five years instead of each year. One might consider
reducing the required degree of accuracy or introducing short-
cuts in the modelling procedure. Such changes would probably
reduce SOVA`s ability to answer the range of questions currently
directed at it by its various government clients, of the type,
"what would it cost the Soviets to counter a U.S. program of
such and such a size in the x mission"?
In this connection, the panel wonders whether the labor cost
? of the annual updates can be reduced by changes in the modelling
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apparatus. SOVA is now in the process of developing a follow-on
to SCAM II. It might be advisable to elaborate that follow-on,
at some increase in the cost of the one-time transition, in order
to reduce the operating costs of updating once the follow-on is
in place. We should, however, note the opinion expressed by a
senior SOVA analyst that model tinkering without moving to a
higher level of aggregation would not yield significant savings
in labor costs. Despite the weight of this opinion, it seems to
us worth raising the issue for further consideration.
The problem of matching resources and estimating requirements
provides another argument for reestablishing centralized
direction of the military economics program. One of the
important tasks of central control would be to encourage
methodological innovation, especially of a cost-reducing type.
To sum up, it appears to us that there is an important
management dilemma with respect to insuring the quality of the
military-economic effort at SOYA. The sophisticated apparatus
built up over the past decade or two requires sizable resources
and ongoing centralized leadership to preserve the quality of the
estimates and to serve the continuing needs of the policy
community. The 1982 update foreshadowed the possibility of more
difficulties in the future if no action is taken. The panel
considers it unreasonable and impractical to cut back on quality
and ability to respond to customer demands, and sees no way to
avoid augmenting resources, especially if our recommendations for
improvements in methodology and estimating procedures are
implemented. Streamlining procedures could perhaps help limit
the increase in cost. But either choice, we believe, should
include setting up a focus of responsibility for the estimates,
to insure maximum quality and responsiveness to policy
requirements.
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V. RECOMMENDATIONS
In this section we summarize our major conclusions with
respect to the concepts, methodology, procedures and management
of the Soviet military expenditure estimates, and offer our
suggestions for actions that can be taken to improve them.
1. There is no doubt in our minds of the value of the
estimating effort, both in terms of the need for and the
usefulness of the product and in terms of the quality and
analytical relevance of the estimates as now constituted. While
we have been critical of various aspects of the system of
estimates and recommend a number of changes, we have a high
regard for its overall quality and for the talents of those who
have been responsible for its development over time.
Particularly large qualitative improvements were made in the last
half of 1970s. We are also convinced that the estimates respond
to a genuine requirement for measures of Soviet military economic
activity. Defense policymaking is better served by the CIA's
making these estimates than by dropping them and leaving clients
to produce their own estimates. We recommend strongly that the
effort be continued and supported appropriately.
2. The panel has noted the resource allocation burden of
operating the estimating effort and of the logical choices
available to SOVA management of cutting the coat to match the
cloth or providing more cloth. Some savings may be possible,
through reducing the frequency and scope of coverage of updates
or perhaps through modelling refinements, but we believe that
maintenance of quality has proved to be and will continue to be
difficult at the current reduced staffing level. Moreover, the
need for methodological improvements, discussed in this report
and summarized below, suggests that in fact additional resources
will be needed.
3. Whatever the decision on resource allocation, the panel
believes it essential to provide centralized, ongoing direction
of the estimating effort, for the reasons set out at length
before.
4. The panel wishes to express its strong support for the
ongoing effort to develop a follow-on to SCAM II. The
deficiencies of SCAM II are fully appreciated by SOYA, and it is
clear to us that a follow-on development is needed.
5. With respect to the estimates themselves, our
recommendations are set forth here in rough descending order of
priority. A major recommendation is that high priority be given
to improving the estimates of RDT&E. The present estimates are
conceptually and methodologically deficient. Alternative
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approaches now being pursued at a slow pace should be accelerated
to the extent possible. Until those approaches are ready for
application:
More effort should be put into the present approach
and into making it more defensible, by more thorough
exploitation of relevant available data.
? The published analyses should skip lightly over the
RDT&E numbers and exclude them from the totals
displayed.
6. The Agency's ruble measure of Soviet burden are valid
indicators of what they purport to measure. However:
? Greater care must be taken in published analyses to
be explicit about the limitations of this measure.
? More effort should be put into attempting to
identify how Soviet leaders might conceptualize and,
measure the Soviet burden.
? It is highly desirable to try to provide some rough
indications of the magnitude of broader measures of
burden, which would incorporate other sets of
activities deriving from the greater militarization
of the Soviet economy relative to that of the
United States, and reflecting the full opportunity
costs of that higher level of militarization.
7. The panel strongly supports SOVA's decision to shift from
1970 to 1982 prices as the constant price base of the ruble
estimates. However:
? A new, detailed and comprehensive set of 1982
adjusted-factor cost GNP accounts must be developed
to complete this shift, in order to make burden
measurement possible in the new set of prices.
? While the changeover to 1982 prices will represent
a major improvement in the measurement of burden
compared to the previous methodology, even the new
series will soon begin to diverge from measures at
current prices. Therefore, we recommend that after
the completion of the shift to 1982 price base SOVA
attempt to maintain current as well as r
measures of defense expenditures and defense
burden.
0
8. We have suggested a variety of studies of price setting
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in Soviet defense industry and complementary studies of ruble-
dollar price ratios drawing on foreign trade data and information
of Soviet arms exports. We believe such studies would be useful
for the calculation of procurement ruble-dollar ratios in a broad
range of categories and serve as a check of their plausibility.
9. Defense industrial research is an area which CIA has
worked for a long time, but it is probably fair to say that the
effort has been primarily technical-engineering in orientation
and that the economic-organizational research has been sporadic
and pursued at a not very intensive pace. Again, competing
demands or scarce resources are major explanations, but the fact
remains that many questions on price policy, decisionmaking,
relations with the civil sector and the like, can only be
answered on the basis of research in depth in this area.
10. The panel believes more can and should be done to
explore alternative methodologies of estimating Soviet military
expenditures exploiting Soviet economic data. Previous
investigations inside and outside the Agency of these
methodologies have had various drawbacks and flaws, but SOVA
should pursue the subject on a more regular basis. The purpose
of this research is to search out possible signals of error in
the building block approach, to enhance the credibility of the
estimates and to help fit the estimates into the GNP accounts.
11. Expenditure is a measure of flows, some of which are
increments to stocks, but military power is a function of the
stocks themselves. Expenditure comparisons continue to be
misinterpreted in a military capability vein, and so far CIA has
not developed true inventory measures of military equipment
stocks. Cumulated expenditures on procurement and construction
over a prolonged period do yield a crude approximation to stocks,
but these proxies are deficient because they do not take account
of depreciation and obsolescence. There is a need for estimates
of weapons stocks in all classes that will take account of these
factors. Such estimates can then serve as the basis for further
comparisons at a force or mission level.
12. An important dimension of Soviet military economics is
mobilization capabilities. A preliminary study on this subject
was done a few years ago but it was incomplete, hastily
accomplished and has never been integrated with other parts of
the military-economic structure and general economic studies.
This is also the heading under which it would be useful to study
the role and magnitude of Soviet strategic reserves.
13. Considerable public attention under the Reagan
administration has been drawn to Soviet technology imports,
clandestine and overt, and their presumed contribution to the
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Soviet military buildup. But the apparent need for an assessment
of these flows has not yet resulted in carefully drawn measures
of size and impact.
14. The Agency has shied away from extending U.S.-Soviet
comparisons to the level of NATO-Warsaw Pact. There are
substantive reasons for the reluctance, but the pressure of
demands for studies of Soviet defense as well as resource
limitations have been sufficient to keep Warsaw Pact studies on a
very distant back burner. The regional reorganization, by
relegating Eastern Europe to EURA, has contributed somewhat to
this result. Doing NATO-Warsaw Pact comparisons is not of the
highest priority, but there is considerable external criticism of
U.S. government use of.Soviet expenditure estimates which points
to the absence of alliance-wide comparisons. The problems of
costing NSWP forces should be reexamined.
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Appendix A
U.S. Government and Non-government Observers
onsu tea--by the Methodology Panel
Paul J. Berenson, Special Assistant to the Under Secretary of
Defense for Research and Engineering
Abram Bergson, George F. Baker Professor of Economics, Harvard
University**
Igor Birman, President, Foundation for Soviet Studies
Daniel L. Bond, Director, Centrally Planned Economies Service,
Wharton Econometric Forecasting Services
Donald F. Burton, Delphic Associates Inc.
Felix Fabian, Lt. Col. USAF, Office of the Assistant Chief of
Staff, Intelligence, Hq, USAF
Office of the Inspector General, CIA
Daniel Gallik, Bureau of Nuclear Weapons and Control, U.S.'
Arms Control and Disarmament Agency
Franklyn D. Hozman, Professor of Economics, Tufts University
Holland Hunter, Professor of Economics, Haverford College
Gene R. LaRocque, Rear Admiral USN (Ret.), Director, Center
for Defense Information
Directorate for Research, Defense Intelligence
g nn cy
Herbert S. Levine, Professor of Economics, University of
yl
William Manthorpe, Assistant for Net Assessment, Office of
Chief of Naval Operations
Andrew W. Marshall, Director of Net Assessment, Department of
Defense
Directorate for Research, Defense Intelligence
Agency
William E. Odom, Major General, USA, Assistant Chief of Staff
? for Intelligence, U.S. Army**
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Steven S. Rosefielde, Associate Professor of Economics,
University of North Carolina
Chairman, National Intelligence Council, CIA
----- -------
* List of those who appeared before the methodology panel or
submitted materials to it. In addition, a few persons were
consulted informally and still others were invited to participate
but were unable to do so.
**Submitted materials only.
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Appendix B
List of Supporting Materials Submitted by Observers
Consulted
Paul J. Berenson, Special Assistant to the Undersecretary
of Defense for Research and Engineering
Letter tol I Chief, Military Economic Analysis
Center, OSR, CIA, 15 January 1979.
Memorandum for the Assistant Vice Director for Research, DIA,
8 December 1980, SECRET.
Memorandum for the Under Secretary of Defense for Research
and Engineering, 14 December 1982, SECRET.
Abram Bergson, George F. Baker Professor of Economics,
Harvard University.
Letter to the chairman of the methodology panel, 20 January
1983.
"On the Measurement of Soviet Real Defense Outlays," to be
? published in Padma Desai, editor, Marxism, Central Planning
and the Soviet Econom : Economic Essays in Honor of Alexander
Erlich, MIT Press.
Igor Birman President, The Foundation for Soviet Studies
Statement: Russian, 3 February 1983; second revision of
English translation, 3 April 1983.
Holland Hunter, Professor of Economics, Haverford College
"Embedding Defense in the Soviet Economy," memorandum to the
chairman of the methodology panel, 7 February 1983.
William E. Odom, Major General USA, Assistant Chief of Staff for
Inte igence, U.S. Army
William Odom, "The Riddle of Soviet Military Spending,"
Russia, 1981, No. 2, pp. 53-58.
Steven S. Rosefielde Associate Professor of Economics,
University of-North Carolina.
"Status Report on Reconciling NAVSEA's and the CIA's
Estimates of the Dollar Cost of Soviet Naval Procurement," 3
November 1980.
"Expanded Statement Prepared for the Subcommittee on
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Estimates of the Ad Hoc Oversight Committee on Estimating
Military Expenditures Convened by the Deputy Director for
Intelligence of the CIA," 18 February 1983.
"CIA Ruble and Dollar Estimates of Soviet Procurement:
Derivation, Economic Meaning and Verification," 22 February
1983.
"CIA Estimates of Soviet Defense Spending: Summary of
Principal Issues in Dispute Raised at the Ad Hoc Oversight
Committee on Estimating Soviet Military Expenditures, CIA
Headquarters, February 18, 1983," 24 February 1983.
Jake W. Stewart, Captain, USN, Executive Director, CNO
Executive Panel.
"Soviet and U.S. Defense Expenditures: The Naval Case"(U),
author not indicated, indicated as dated January 1980,
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18 November 1983
MEMORANDUM FOR: Director of Soviet Analysis
FROM: D Chief, Econometric Analysis Division
eputy
SUBJECT: MEAP Meeting, 4-5 November
1. A full day of briefings were held on 4 November (a copy of the agenda ons on is attached). The mornievoEadhtofltheespeakersefromithe Forces
physical estimates of production. Divisions were well prepared and d made
showed considerable interest and
preparation for the afternoon discussion on our projections.
presented
2. The afternoon session was more of a potpourri.
eady
the briefing we have been giving to high-level l remarks co sumers the around town.alr(In
? doing so, he excluded the methodological
familiar with them.) Joe indicated the purpose of the presentation was to
refresh the Panel's memory of our estimates in doig so to expos
recommendationhthato
the product we were using in our response
we expand our contacts with consumers. The Panel's reaction to this briefing
was positive.
of DIA. It was an
3. The next presentation was given by
overview of recent DIA analysis of thresourcesimplications of Sovietgdefense
activities in both dollar and ruble terms.
smoothly and the Panel expressed reswork wh~ch wasevseraatlbestelementtentatis of
briefing. DIA, unfortunately, presented preliminary. Because some of the analysis was new to SOYA, it caused the
webetween
Panel to question whether communications
abthe le toeassurewthe Panel these
effective as they should be.
problems were more apparent than real in our discussion the following day. s 4. The final presentation on Friday wvaboutf howlto improve our
estimates. This was followed by a lively discussion
force projections in general an~hhsw ffortke betterdiuscusessiofonosurimilnvolitavedrythe A
E
economic data in particular in
entire Panel, the forces speakers he?Panel a?clear pectu~e,ofsthel problems
participants. I believe it gave t
involved in developing the projections and some ideas were discussed which we
can put to good use.
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?
SUBJECT: MEAP Meeting, 4-5 November
5. The Saturday session= focused primarily on EA's (and to a lesser f extent DI's) reaction to the Panel recommendations. (Atwachededsas ai t of of
Panel recommendations put toget er b gathered which s u poi
the recommendations into
departure for the discussion.)
the time was
three groups: things we arealdOnatythinkgarehfeasible. are Monot st of, but
will undertake, and things we se FY- devoted to the first two groups ad?theeut~lityuof resourmethodolcesogytaonnexmeet
them. Joe indicated that we question roduce it given
recommended by the Panel that we are
membersnarentryingetolkeepoit alive although
Paul Cheek
competing demands. .
thetR&Deproblemnand how he
their perception ofits outform
his perceptions ofseems
then spoke b briefly ab
intended to use his additional FY-84 resources to reatescriibtedathndeotherPFIABareas of
analysis within his division. Finally, 0
recommendations and our reactions to them.
At the close of the meeting noted that he would be in touch with the P SOVA regarding some ideas he had orthe increasing
6.
gettmngihisimoneyts worthafrom
between meetings to see it that
t this in general
d he
s and sa
ti
i
i
the Panel." He spoke to abou
e
would be providing his ideas a e a memo. Finally, as e ere leang
told Doug and I individually he wasfocuthe
b
Panel's attention more narrowly
an e
meeting in a long time. I
has been been the case recently.
mendati
Recommendations
7. For your consideration, I would like to propose the following:
At succeding meetings we play an activist role in
setting the Agenda as we did for this meeting. In
and focus
particular, ttiss for clear
both that
the Panel more
the better ourselves.
the i
If DIA is to make a presentation, we require a pre-
brief by them as
mawe of our n terial and unusualkcommentsaren't
surprised by new We restrict DIA attendance somewhat;
they had seven
people here for the meeting, some of whom were
straphangers. SOVA analysts who could have benefited
from the meeting were unable to attend because of
space limitations. (We may wish to limit the Air
Force in the future also. I believe they had four
people in attendance.)
?
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SUBJECT: MEAP Meeting, 4-5 November
u
panel. Such list should inc
We give thought to drawing up a list of people from
which to select additions/replacements to the
1 de?
Academics
People with policy
making experience
People from defense
industry
(University o Washington)
(Stanford)
(MIT)
(I don't have any names but
would like to see someone
brought to e rantr".
0
0
Attachments:
As stated
-3-
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 f `
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2 November 10R3
Military-EconOmic Advisory Panel
04 & 05 November 1983
AGENDA
Meeting
04 Nov R3 (SOVA Conference Room)
F timates of
Og00-1200
Weapons Production Inputs to
Soviet Defense SpendinV
Overf4 ew of Veapons Production
Missiles -
Aircraft
Clk 4 -n it
AyyrPeate Production -
Analy,sis of
25X1
25X1
25X1
25X1
0
1200-13nn
I3nn-1430
1445-1530
1 530-] r+nn
1600-17nn
1R0n
05 Nov Q3
Lunch
Svendinsz and weapons Procurement -
Defense
timates of Soviet Defense Svendins -
DIA
Preview of 1Q43 Esti1 ate -
Discussion Regarding Panel's Reaction to
Slowdown - Panel Members
Dinner down country
SOYA Response to PFIAR and MEAP reports -
chairs Panel comprised of
I)GVA
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)FY -1
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Land Ar'"ame
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HEAP RECOMMENDATIONS
Objectives and Management of the Proms economic data base
1. A single SOVA-wide coordinator of the military
needs to be appointed.
0
0
SOYA should affix mandatory qualifications when the dollar and ruble
2.
estimates are distributed to the intelligence community.
The results of the costing work--particularly for the historical
3.
period--should be published on an unclassified basis.
The ROT&E estimates are so uncertain that they should be excluded
4.
from the totals until they can be substantially improved.
User Relations
5. The basis for both the ruble and dollar estimates should be
a ressively explained and briefed with the limitations emphasized.
99
6. SOVA should prepare an annex documenting the current methodology.
7. SOYA should organize an annual users group meeting to confer on the
current state of the update.
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thodolo be redone, making fuller use of accessible
be
8. The RDT&E estimates should
g. The 1970 ruble price base should be replaced by a 1982 price base.
produce a current price
subpanel further recommended that SOYA p
The methodology every year.
estimate--i.e.' the price base would change GNP estimates should be reviewed and high
for making
p rice base.
10. The methodology
to making a Soviet GNP estimate in a 1982 P
priority should be given
made to expand the ruble price sample--for
11. Efforts should be
instance, by using foreign trade prices.
0
0
be done while the ruble price base is being
studies should roductivity
12. Special
the likely rise in real resource costs due to
changed to assess
declines.
13. In performing Soviet burden calculations, the effect of including
other categories in the definition of defense should be considered.
14. s to the building-block approach should be
Alternative methodologies
regularly reviewed.
15. Non-US NATO and NSWP should be included in the comparisons.
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Model (the set of computer programs we use to calculate
? 16. The SCAM II requirements study
laced by a new system if a rthe estimates) should be rep analysts' time.
shows that this would lead to a more efficient use of
Sub panel
dations b the Methodolo
Additional Recommen
l of an economic-
articular y
se industrial research, p
17. Defen
much more intensively.
organizational nature, should be pursued 18. The CIA should
develop measures of the capital stock of Soviet
weapons in addition to the present procurement flow estimates.
19. An assessment should be made of the economic value of Soviet
technology imports--both clandestine and overt.
0
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 v*-+aa a %. .-.vva a va a aav v%JI t II I IIILGIG
PRESS RELEASE
8th Congress
ooer W. Jepsen, Iowa
hairma n
.ee H. Hamilton, Ind.
lice Chairman
William V. Roth, Jr., Del.
lames AbdnoT, S. Dak.
seven D. Symms, Idaho
-',ack Mattingly, Ga.
Jfonse M. D'Aniaio, N.Y.
.loyd Bentsen, Texas
k illiam Proxmire, V.'is.
Edward M._ Kennedy, Mass.
aul S. Sarbanes, Md.
3illis "' Long. La.
Mitchell, Md.
Rug s F. Hawkins, Calif.
David R. Obey, Wis. '
James H. SchC-uer, N.Y.
'-halmers P. Wylie, Ohio
Marjorie S. Holt, Md.
Dan Lungren, Calif.
Dlympia J. Snowe, Maine
Bruce R. Ba, lett
Executive Director
ontact:
3il1 Maddox
(202) 226-3230
1983 --: 95
Joint Eccnornic Committee
SD-G01 Dirksen
V:ashiny:on, D.C. 20510
(202e 224-5171
EP1i3ARGOED FOR RELEASE TO
6:00 P.M., SATURDAY, NOVEMBER 19, 1983
PROXMIRE RELEASES CIA REPORT ON SOVIET ECONOMY
Washington, D.C. -- Senator William.Proxmire
(D-Wis.) released today a new CIA study of economic
`rends and policy developments in the Soviet Union.
The study, prepared by the Office of Soviet Analysis,
CIA, was submitted by Robert Gates, Deputy Director
for Intelligence, together with testimony presented
to the Subcommittee on International Trade, Finance,
and Security Economics of the Joint Economic
Committee.' Proxmire is Vice Chairman of the
Subcommittee.
Proxmire said in a statement from his Washington
office:
"The study presents the results of the CIA's latest
study of the Soviet oil industry and Soviet energy
prospects into the 1990's, reviews the recent perfor-
mance of the economy, and provides new revised esti-
mates of Soviet defense spending.
"According to the CIA, Soviet economic activity has
picked up somewhat in the present year and the CIA now
forecasts a growth rate of 3.5 to 4 percent for 1983.
However, the CIA has not changed its estimate that
Soviet GNP will average only about 2 percent growth
annually for the next several years.
"The improvement is due in part to improved
weather during the past year, in part due to Andropov's
campaign for greater discipline.
"In contrast with earlier estimates, energy is no
longer considered to.be a serious constraint on
economic growth during the 1980's.
"The CIA now believes the Soviet Union has avoided
the downturn in oil production that was'once predicted.
Oil production is expected to-continue growing, level
off by the middle of the decade, and then decline
slowly until 1990.
"The revised defense estimates show that the total
costs of defense since 1976 has risen by only 2 percent
a year, compared to the 4-5 percent annual growth rate
previously estimated. The slowdown in the growth rate
is due to the leveling off of military procurement
since 1976.
"The slowdown," Proxmire said, "of Soviet defense
growth rates has profound significance that has not yet
penetrated policy circles.
"In one sense, the CIA's new estimates demonstrate
that the Soviet defense program is very large and still
growing, although at a slower rate than before.
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"But Moscow has not been expanding its effort at, the rapid rate
that was once believed. It slowed its defense expansion beginning
about seven years ago, a fact that the Soviets neglected to communicate
and that the West failed to detect."
Proxmire continued, "My own view of the Soviet economy is that
we in the West tend to magnify its weaknesses and to overlook its
strengths .
"The Soviet Union won't collapse or even stagnate for very long
just because they have an economic system we do not like.
"It is as important that we accurately assess Soviet economic
capabilities as it is that we accurately assess Soviet military
capabilities."
Copies of the CIA report, USSR: Economic Trends and Policy
evelonments , may be obtained' from the Joint Economic Committee,
btions
lica Department, G-01 Dirksen Senate Office Building, Wash-
,gtcn, D.C., 20510, or by calling (202) 224-5321.
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UNITED PRESS INTERNATIONAL
18 November 1983
SOVIET DEFENSE
t'ASHINGTON
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WIRE 43 PERCEN I If1.I? t ::3 THE RtrT :, AI It
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ARTICLE APPEARED
ON PAGE - .j
.
to defense-the military burden-was in a Pentagon whose constantly reiterated fits poorly with another fashionable idea-
found to hold at 13-14 percent. political objective is to strengthen the basis that the Soviet economy is weak and
-The CIA suggests that most of the, slow- for higher American defense spending. laboring, desperately in need of reform
don took place in procurement of new That the DIA, unlike the CIA,..is unwilling and meanwhile a sure loser in an arms race
hardware, the driving force of past Soviet. to unveil its methodology and subject it to with the United States. Two percent eco-
defense growth. It attributes. that slow- outside scrutiny does not build,confidence, nomic growth in a bad year is not so bad.
down to familiar economic and systemic in DIA's.product. The CIA expects 3-4 percent in 1983. We
shortcomings. Yuri Andropov s defense The CIA's ' new estimates bear di- are not sure how the Soviets set their de-
position, a CLA briefing paper notes, is rectly on critical policy questions.. fense spending level, but it would be fool-
.unclear.... The little evidence that is The estimates call into doubt the cen- ish to think that economic or systemic dis-
available indicates Andropov has not ac- tra! political and emotional premise of tress will keep them from doing what they
celerated Soviet military spending." the Reagan rearmament program, the feel they have to do.
The most important political number in The Pentagon's own Defense Intelli- contention-the conviction-that the
the world is the size of the Soviet defense - gence Agency does not, accept the. new Soviet Union was and still is-embarked
budget. More than any other single statis- CIA figures. The DIA believes that there on an arms-building program of un-
tic or fact, or any combination, it governs , was no slowdown in total Soviet defense precedented dimensions. It turns out
our judgrnents- of Soviet,power.and our re- ,. spending in the.crucial ruble account in that the Kremlin has a powerful mili-
sponses to it. So it, is of prime importance the 1970s, that procurement growth tary force which is growing but at a rate
that the Reagan. administration has had slowed from 9711 percent to. 6.9 percent that is ?noi'what you would call espe-
the defense number wrong for three years.. through the decade, and that the military. cially menacing:'2 percent.
The administration has been on, the high burden increased _from -13-'4-percent to The estimates undercut the common
side by a factor of at least two: 14-16 percent, , , conservative belief that the Soviets ex-
Says who? Says the Reagan. CIA. Its - . How does one sort out the C1A-DIA ploited the- period of detente in the
latest review produced startlingly lower difference? Suggests one analyst, the, 1970s, while we Americans were dimin-
estimates of Soviet defense spending. JEC's Richard F. Kaufman, in a staff ishing our defense effort, and wickedly
These have been duly relayed to the. study: "The DIA's estimates for Soviet forged ahead on their own. Our vigorous
Joint Economic Committee of Congress, defense.and GNP have limited utility catch-up, launched by Jimmy Carter
which is about to make them public... . for policymakers because they are not and intensified by Ronald Reagan, has
The Soviet Union is not disarming- adjusted for. inflation,. are based on a coincided with a steady Soviet perform-
not by a long shot. But while the CIA definition of Soviet defense that is dif-. ance at a relatively low level. Rather
had previously estimated that. Moscow ferent from the definition of U.S. de- than using detente to gain on us, the
was ;continuing io increase military fense,..and contain wide Ymargins of Soviets appear to' have used it to give
spending in 1976-81 at the very strong if error.:The DIA considers' its method- themselves something of a breather.
not alarmrang rate of 4-5 percent a year,,, oiogyclassified,making it difficult for Finally, Soviet defense growth of 2 per-
the figure is now put at a modest 2per= outsiders to evaluate its measures." cent, for years in which overall Soviet eco-
The share of the economy devoted . : - A citizen must note that the DIA works nomic growth is also now put at 2 percent,
cent
WASHINGTON POST
18 November 1983
Knockdown of a Soviet 'Buildup'
eld
Stephen S. Rosenfeld
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LOS ANGELES TIMES
19 November 1983
DNPtGE
?
CIA Estimate of Soviet Military Budget Cut
?
By DAVID WOOD, Times Staff Writer
WASHINGTON-The Central tween 13/c and 14%, compared to
Intelligence Agency has issued a the United States' 6.5% of its GNP.
reassessment of Soviet defense Although the CIA analysts did not
spending that indicates that, during detail the reasons for their revised
the late 1970s, it grew at only half estimate, they said the Soviet Union
the rate previously estimated by the did not field as many major new
Defense Department and that Sovi- weapons-including missiles, air-
et production of military hardware craft and ships-in the latter part of
hardly increased at all. - - the 1970s as at the beginning of the
The CIA, in a . report released decade. They said the "continued
Friday by the Congressional Joint slow growth" of Soviet military
Economic Committee, said that on power appeared to be caused by a
the basis of "new information" it combination of manufacturing bot-
had revised its previous estimate tlenecks, technological problems
that Soviet defense spending had and unexplained "policy decisions."
risen about 4% a year between 1976 ' Since 1975, according to Pentagon
and 1981. The new estimate, the figures, the Soviet Union has out-
CIA said, indicates a 2% annual built the United States 2,000 to 350
increase. in ballistic missiles, 54,000 to 11,000
Furthermore, preliminary esti- in tanks and other armored vehi-
mates for 1982 indicate that Soviet Iles, 6,000 to 3,000 in tactical combat
n ilitary spending is still growing at aircraft, 85 to 72 in surface warships
the slower rate even when mea- and 61 to 27 in attack submarines.
the Sov ets also spena a muc United States "simply cannot wait
greater percentage of their gross
national product on defense-be- to restore our military strength-
sured in constant 1970 prices, the
report added.
Nevertheless, according to the
CLA analysis. and the Pentagon's
own Soviet specialists, the level of
Soviet defense spending has been so
high for so long that, even with a
siowd,zA-n, it is well above that of
the United States. They estimate
that in 1981, for example, the Soviet
Union spent 45% more than the
United States on both new weapons
systems and on all defense activi-
ties.
According to the CIA analysis,
h
However, the CIA's new estimate
differed sharply with the Penta-
gon's view of the Soviet military
buildup, which Defense Department
officials have characterized as con-
tinuing to grow at a high rate.
Defense Secretary Caspar W.
Weinberger repeatedly has sought
to justify increases in the defense
budget on the basis of similar
increases in Soviet spending.
Weinberger, appearing before the
Senate Armed Services Committee
last February to fend off proposed
cuts in the budget, declared that the
we must do it now, this year, in this
budget. . . :'
The Defense Intelligence Agency,
which produces its own estimates of
Soviet defense spending for the
Pentagon, reportedly disagrees
with the new CIA estimate. Howev-
er, a.Defense Intelligence spokes-
man said :Friday ' that the agency
would not be ready to respond to the
CIA report until next week.
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is
NEW YORK TIMES
19 November 1983
Soviet Arms Spending Said to Slow
By HEDRICK SMITH
Sped&l tome New York Times
WASHINGTON, Nov. 18 - The Cen-
tral Intelligence Agency said today
that Soviet military spending, espe-
cially for procurement of new weapons
I systems, had grown more slowly in the
last seven years than previously
thought.
"New information indicates that the
Soviets did not field weapons as rapidly
after 1976 as before," said the report
released by the Joint Economic Com-
mittee of Congress. "Practically all
major -categories of Soviet weapons
were affected - missiles, aircraft and
ships."
President Reagan has repeatedly
said the Soviet Union is engaged in an
unprecedented military buildup, but
the C.I.A. study said that for the last
seven years the annual growth in
Soviet military spending was only half
what it was in the 1966-76 period. From
1966 to 1976, it said, Moscow increased
military outlays by.4 to 5 percent a
year.
`About 2% a Year' on Military
.,Our new estimate, however, shows
that like overall economic growth, the
.rise in the cost of defense since 1976 has
'been slower - about 2 percent a year,"
the C.I.A. report said.
But the agency also estimated that in
Yuri V. Andropov's first year as the
Soviet leader, the Soviet economy re-
bounded from sluggish performances
in 1981 and 1982, when the growth rate
was 2 percent. This year, the report
forecast growth of 3.5 to 4 percent.
The Soviet economic rebound, the
agency said, leaves open the question
of whether the Kremlin leadership will
now feel it can push Soviet military
spending at faster rates.
In energy production, the C.I.A. said,
Moscow's "prospects for the future are
considerably better than we once
thought." In 1977, the agency predicted
that Soviet energy production would,
significantly taper off and that the
Soviet Union would be an energy im-
porter by 1985.
No More Currency Squeeze
The report issued today said Soviet
natural gas, coal and oil output were all
advancing. It also said Moscow had
significantly recovered from a hard-
currency squeeze in 1981 by holding
down imports and strongly pushing pe-
troleum exports.
In spite of the slowdown in Soviet
military spending, the study said, Mos-
cow's military budget still outstrips the
Pentagon budget by at least 25 percent.
Nonetheless, with Congress having
approved a 5 percent increase in the
1984 Pentagon budget, Senator William
Proxmire, Democrat of Wisconsin,
deputy chairman of the Joint Eco-
nomic Committee, said the "slowdown
of Soviet defense growth rates has pro-
found significance that has not yet
penetrated policy circles."
"In one sense, the C.I.A:'s new esti.
mates demonstrate that the Soviet de-
fense program is very large and still
growing, although at a slower rate than
before," Mr. Proxmire said. "But Mos-
cow has not been expanding its effort at
the rapid rate that was once believed.
It slowed its defense expansion begin-
ning about seven years ago, a fact that
the Soviets neglected to communicate
and that the West failed to detect."
Dispute Over Estimates
Last spring Pentagon and C.I.A. spe-
cialists were reported to be arguing
over levels of Soviet military spending.
The Pentagon estimate was that Mos-
cow was proceeding as ambitiously as
before, but C.I.A. officials said those
estimates were overstated.
Today's report indicated the agency
was sticking to the more cautious view.]
of Soviet spending. "The rate of growth
of overall -defense costs is lower be-
cause procurement of military hard-
ware, the largest category of defense
spending, was almost flat in 1976-to-
81, the agency study said. Prelimi-
nary estimates for 1982, it added, show
the same lower trend is continuing.
next few years.
More broadly, the study said the new
slower trend in military procurement
along with continuing domestic eco-
nomic problems and the political suc-
cession of Mr. Andropov "raise impor-
tant questions about the future of the
Soviet defense effort." .
It suggested that the current leader-
ship "may well be under pressure to
speed up defense spending" but that
any major effort to do so "could make
it even more difficult to solve the fun-
damental economic problems facing
the Soviets" by forcing cutbacks in in-
vestment in the civilian sector and in
consumer goods.
In the long run, it said, such a strat-
egy could "erode the economic base of
the military-industrial complex itself."
Despite these competing economic
pressures and priorities, the study said
the Soviet economy had shown enough
strength to conclude that it "is not on
the verge of collapse."
The study attributed the slowdown in
military procurement since the late
1970's to technological problems, indus-
trial bottlenecks and policy decisions.
it also speculated that some money
previously allocated to buying new
weapons might have been diverted to
research and development.
Nonetheless, the agency report indi-
cated that such momentum was gener-
ated in the late 1960's and early 1970's
that Moscow continued to accumulate
large stocks of new weapons. Moscow
also allocated roughly 13 to 14 percent
of the total Soviet budget to military
spending, roughly double the American
figure..
The agency said present Soviet levels
of spending were so high that. since
'1975, despite "the procurement pla-
teau," Soviet forces have received
about 2,000 land- and sea-based inter-
continental missiles, more than 5,000
tactical combat and interceptor air-
craft, 15,000 tanks and substantial
'numbers of naval surface vessels and
submarines.
Lower Growth Rate Predicted
Assessing Mr. Andropov's first year,
the agency study said his economic
policies had not brought much innova-
tion. "Continuity has been far more
pronounced than change," it said. In
spite of the jump in economic growth
this year, it projected a lower annual
growth rate of around 2 percent in the
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BALTIMORE SUN
19 November 1983
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AR : I CLE 1ti?PEARED
021 PAGE ,
CIA fi
Soviet
ing arms
spending
Washington (Reuter) --The CIA neglected to communicate and that
said yesterday the rate of increase in the West failed to detect."
Soviet defense spending has slowed, . Mr. Reagan, in seeking congres-
apparently contradicting President sional and public support for his $1.8
Reagan's frequent warnings that trillion arms program over five
Moscow was embarked on an unprec- ; years, often has invoked the threat of
edented arms buildup. what be called the continuing mas-
In a new analysis of the Soviet sive Soviet military buildup.
economy, presented to the Congres- The CIA analysis also covered the
sional Joint Economic Committee state of the Soviet economy which, it
September 20 and released yester- said, was not on the verge of collapse:
ddav by Senator William Proxmire After two years of low growth in 1981
(D, Wis.), the CIA cut its previous esti- and 1982 the Soviet economy seemed
mate of Soviet defense growth by poised for a rebound, the CIA said.
more than half. "Despite its problems, the U.S.S.R.
Moscow continued to increase is not on the verge of economic col-
military outlays until 1976 by a lapse. The Soviet economy is the sec-
strong 4 to 5 percent annually, ac- and largest in the world with a large
cording to the CIA testimony. j and literate population, a huge indus-
"Our new estimate, however, trial plant and an enormous endow-
shows that like overall economic merit of natural resources," it said.
growth, the rise in the cost of defense The CIA predicted 1983 economic
since 1976 has been slower - about 2 growth based on statistics from- the
percent a year," CIA analysts said. first seven months at 3.5 to 4.0 per-
The CIA found that a slowdown in cent of gross national product, com-
producing military hardware, the pared with 2.0 percent in 1981 and
1982.
largest category of Soviet defense But growth then would slow to an
spending, accounted for most of the annual rate of 2.0 percent, it added.
.drop. It gave no explanation for the The CIA also revised Soviet oil
policy change. prospects, saying they were not as
The Central Intelligence Agency bleak as it estimated in 1977, when
reported that its preliminary data for some analysts forecast the Soviet
1982 indicated the slowing'trend was Union would become a net importer
continuing but added that, despite of oily 1985.
lagging growth, Soviet defense activi- Although production was leveling
ties exceeded those of the United
States "by a large margin., off, the prospects now were consider-
The Pentagon's Defense Intelli- ably better than once thought, ac-
gence Agency disputes the new CIA cording to the CIA testimony. _
Assessing new leader Yuri V. An-
figures, reporting that there has been dropov's performance in office, the
no slowdown in total Soviet defense CIA said basic Soviet policies had not
spending in the 1970s, according to altered since the death of Leonid
published reports. Brezhnev.
Mr. Proxmire said the CIA analy- "Continuity has been far more pro-
sis had a profound significance that nounced than change," the agency's
had not yet penetrated policy circles, analysts said.
Noting that Soviet defense spend-
ing remained large and growing, he
said, "Moscow has not been expand-
ling its effort at the rapid rate that
was once believed, a fact the Soviets
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ARTICLE APPEARED
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WASHINGTON POST
20 November 1983
Soviets Seen Slowing Face of Arpiing
United Prr_a lnternMlonal
A new CIA report on the Soviet
economy indicates that defense costs
have risen at a slower rate than pre-
viously thought, although the Soviet's
commitment to the military still far
outstrips U.S. outlays.
"New information indicates that the
Soviets did not field weapons as rap-
idly after 1976 as before," said the re-
port released Friday by the congres-
sional Joint Economic Committee. .
Sen. W Liam Proxmire (D-Wis.),
subcommittee vice chairman, said the
slowdown of Soviet defense growth
rates 'has profound significance that
has not yet penetrated policy circles.'
"In one sense, the CIA's new esti-
mates demonstrate that the Soviet
defense program is very large and still
growing, although at a slower rate
than before," Proxmire said.
"But Moscow has not been expand-
ing its effort at the rapid rate that was
once believed. It slowed its defense
expansion beginning about seven years
ago, a fact the Soviets neglected to
communicate and that the West failed
to detect"
The study was prepared by CIA's
Office of " Soviet Analysis and was
presented to Proxmire's subcommittee
by Robert Gates, deputy director for
intelligence, during closed hearings in
September.
"In one sense, the
CIA's new estimates
demonstrate that the
Soviet defense
program is very large
and still growing,"
.Sen. William
Proxmire, above, said.
The report said Soviet defense
spending in constant 1970 ruble prices
continues to increase.
"However, the new evidence incor.
porated in our present estimate indi-
cates that in at least one major area,
the procurement of military hardware,
Soviet expenditures have leveled off
since 1976."
"Our net' estimate ... shows that
like overall economic growth the rise
in the total cost of defense since 1976
has been slower-about 2 percent a
year," a lower rate than before largely
because the growth rate for procure-
ment `was almost flat in 1976-81."
Practically all major categories of
Soviet weapons were affected-
missiles, aircraft and ships, the CIA
said, adding that the trend was only
partially offset by the tendency of
newer, more sophisticated weapons to
cost more.
The CIA report stressed that trends
in Soviet military spending "are not a
sufficient basis to form judgments
about Soviet military capabilities,
which are a complex function of weap-
ons stocks, doctrine, training, gener-
alship and other factors.
"Moreover, the spending estimates.
do not give an appreciation of the
large stocks of strategic and conven-
tional weapon systems already de-
ployed," it said.
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NEW YORK TIMES
20 IlIover ber 1983
WASHINGTON
OOKING back 50 years to when President Franklin
D. Roosevelt opened diplomatic relations with
Stalin's Russia, George F. Kerman recalled last
week that the two nations "rubbed each other
tion proposed a ceiling of 420 missile warheat:s, down
from the planned American level of 572. Moscow hinted
at a cut in its triple-headed SS-20 missiles aimed at Eu.
rope from 243 to 120 (with 117 more for Asia), but leaving
the United States at zero. The White House dismissed this
as unfair.
A breakdown in the arms talks seemed all but inevi.
table. And elsewhere, the two nuclear giants were jab-
bing at each other through proxies in Central America
and Lebanon. The Kremlin, which has long favored ac-
ceptance of spheres of influence in a superpower's home
region, has kept its forces away from El Salvador and
Nicaragua. But in volatile Lebanon, each side has troops
at the fringes of a power vacuum reminiscent of the Bal-
kan tinderbox that produced World War I. Some 7,000
Soviet advisers manning missile sites in Syria are only
about 60 miles from 1,800 American marines in Beirut.
At another level of unpleasantness, Congress last
week extended Presidential powers to restrict exports
for security reasons to Feb. 29. The United States also re-
vised its list of places Russian diplomats and journalists
may not visit - about 20 percent of the country - recip-
rocating for Soviet travel restrictions.
A troubling new factor is the uncertainty caused by
the three-month absence of Yuri V. Andropov, the Soviet
leader. American experts believe he is seriously ill and
thus politically handicapped. The Reagan Administra-
tion anticipates a Soviet standpat hard line because, as a
high American official said, "There's nobody at home
over there to make a deal with." As Kremlin maneuver-
ing for succession begins, others add, candidates are
likely to bid for favor by holding to a tough line.
. Adding to the White House menu of worries is the
political shock expected tonight from ABC's television
movie "The Day After," exploring the thermonuclear
nightmare. Richard B. Wirthlin, President Reagan's
polltaker, predicted "a very strong impact."
American Wariness
The escalation of tensions and public anxiety were
predictable, however. The struggle over missile deploy-
ment was set into motion by NATO's decision four years
ago to match Moscow's buildup of SS-20 missiles with
American missiles unless the Russians accepted parity
of nuclear missile forces in Europe. But the current chill
acquired its ominous edge from the cold distance and re-
ciprocal mistrust between Moscow and Washington in
the Reagan-Andropov era. After fencing for two years,
the two sides began a diplomatic effort last summer to
bridge the gulf. That effort crashed along with the South
Korean airliner shot down by Soviet fighters in August.
The incident left behind a residue of new American ap-
prehension about Soviet intentions and Russian doubts
about the prospects of striking any agreements with a
President who sees Moscow as "the focus of evil in the
modern world."
The dangers, however, should not be overstated.
They do not compare with the nuclear showdown over
Cuba in 1962 or earlier confrontations over Berlin. For all
of today's tensions, the new Soviet-American five-year
grain agreement stands. Washington has lifted some
sanctions against Poland and has allowed a few commer-
cial deals. Each capital carefully avoids challenging the
other militarily. "We're not close to war," said Richard
Burt, the Assistant Secretary of State for European Af-
fairs. "Even if the Soviets walk out of the arms talks,
they'll be back after awhile." Perhaps. The implication
is that each side has an interest in not letting current ten-
sions get out of control, for the risk of miscalculation is
high at a time when the margin of restraint is extremely
thin.
painfully in many ways." Their ideological competition
then was "far more intense than today," he said, and
political tensions were "no smaller." But he added the
sweeping verdict that the problems half a century ago
were modest beside today's nuclear anxieties. "What we
did not anticipate was anything resembling military con.
flict between our two countries," the renowned scholar
and diplomat said. "It is weapons we now talk about,
weapons we read about, weapons we negotiate about. Be-
hind this endless debate about weaponry the real political
issues between the two countries fade into obscurity."
Trapped in the nuclear competition, he said, the super-
powers "are simply writhing helplessly at immense dan-
ger to themselves and to the world around them."
Whether or not this assessment overstates the dan-
gers, it captures the chronic worry in the West about the
dangerous drift and icy distrust in superpower relations.
Imbedded in the public mood is a strain of dark pessi-
mism and dismay that the logic of events may be drag-
ging the world toward unspeakable disaster.
The immediate targets of concern last week were the
American nuclear-tipped cruise missiles in Britain. They
were greeted by howls of protest in the House of Com-
mons and by angry demonstrators outside the air base at
Greenham Common where they were unloaded. The
drama may be re-enacted in Italy when the cruise ar-
rives there and in West Germany when deployment of
Pershing 2 missiles is to begin next month. For all the
furor, Britain's Conservative Government had won Par-
liamentary approval of the deployment this month; the
Italian Chamber of Deputies followed suit last week. The
climactic test comes tomorrow in the Bundestag in Bonn,'
where Chancellor Helmut Kohl is determined to proceed
despite mounting opposition from the Social Democrats.
`Campaign of Fear'
The Pershings have generated the sharpest contro-
versy. Moscow contends their nine-minute flight time to
Soviet soil will shorten the fuse of nuclear.war and may
force a counterstrategy of launching Russian missiles on
warning of attack. But some American experts believe
the cruise, once let loose, may be an even more danger-
ous genie. It is small, highly mobile, easily hidden and
thus virtually immune to arms control. Proliferation of
cruise missiles could spur a new arms spiral like the one
touched off by multiple-warhead intercontinental mis-
siles in the 1970's, a decade ridden by controversy over
which side led in the arms race.-(The-Central Intent-,
genre Agency last week scaled down.its estimate of
Soviet military spending in the late 70's. It said the Rus-
sian defense budget had risen by 2 percent a year since
1976 - half the groom rate the previous decade, al-
though still outstripping comparable Pentagon budgets.)
in what the Reagan ministration called a "cam-
paign of fear" aimed at getting the West to postpone.de-
ployrnent, the Russians have threatened to walk out of
the intermediate-range arms talks when the American
missiles are in place. Last week, Soviet Defense Minister
Dmitri F. Ustinov tightened that screw with a strident at-
tack on the West, warning that Washington would feel the
consequences of deployment. Both sides floated new
proposals at Geneva aimed more at looking flexible, it
seemed, than at striking a deal. The Reagan Administra-
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CHICAGO TRIBUNE
20 November 1983
By James Coates White House spokesman Larry months of 1983, we estimate that
Speakes -said the administration GNP [gross national product, the
Chicago Tribune, would have no comment on the re- output of a nation's goods and servic-
WASHINGTON-The CIA has low-,rt until after it is released official- es) will rise by 33 to 4 percent, well
ered its estimate of Soviet defense ly this week. above the approximately 2 percent
spending and brightened its 1983 The CIA analysts who wrote the growth achieved in both 1981 and
forecast for the Russian economy report alluded to 1982. ..."
possible questions The CIA disclosed that Andropov
after analysts noted that Kremlin about whether the U.S. had over- moved dramatically to implement
leaders are spending less for stated the Soviet threat but empha- reforms, divert economic activityy
weaponry than had been thought. sized that the Soviet build-up is nev- away from defense and into the civil-
The CIA, in a report for the Con- ertheless substantial. fan economy and to arrest high-level
gressional Joint Economic Com "Our latest comparisons of U.S. officials snd blue-collar workers for
mittees, said that while it had pre- and Soviet defense programs show corruption and malingering.
d i c t e d that Soviet weapons that despite somewhat slower growth 'THE NEW REGIME has shown
procurement would increase by 4 in recent years, the cost of Soviet f concern for the welfare of the pu
percent to 5 percent per year in the defense activities still exceed those concern in a variety re of the the
1980s, it actually has "flattened out" of the United States by a large mar-
-at only 2 percent a year. gin," the report said. report noted. "First, a flurry of de-
"The revised defense estimates Despite the "flattening out," the crees has been published this year
show that the . total cost of defense CIA said, the Soviets continue to callin for improvements in the level
.
since 1976 has risen by only 2 percent build their massive arsenal. In- of daily services and in the supply of
a year," said Sen. William Proxmire deed, current levels of spending are consumer goods provided the popula-
[D., Wis.], who released the report so high that despite the procurement ti "A
by the CIA's Office of Soviet Analy- plateau noted, the Soviet forces have The report said, for example:
sis. "The slowdown in the growth received since 1975 about 2,000 oint Central Committee-Council of
rate is due to the leveling off of ICBMs and SLBMs [Submarine Ministers resolution was published in
military procurement since 1976." Launched Ballistic Missiles], over March rs rch calling for an expansion of
clearing
The report attributed i m - 5,000 tactical combat and interceptor the number of repair and clean such
provements in Soviet economic con- aircraft, 15,000 tanks and substantial shops, hairdressing, more sirdressin,film personal developing and
ditions to better weather conditions numbers of major surface comba- mnd
cs; and
than had been anticipated, the dis- tans, SSBNs [missile submarines) the consumer durables; covery of energy resources and a and attack submarines." the rental of onet workinh establishment hours of in more the service
quiet shift downward in the massive Proxmire, one of the Senate's rep- sector.
defense spending that had severely resentatives to the Joint economic This "resolution" was followed,
drained the economy during much of committee, said the Russian leader- the CIA said, by "unusually blunt
the last decade. ship began decreasing defense ex-
pansion rates in 1976 but kept the warnings I to consumer ministries "
The report also credited major policy secret. "The slowdown of So- 'shape up."
fanning out in the
crackdowns by Soviet President Yuri' viet defense growth rates has pro- WITH to knock on fanning doors of
Andropov, formerly head of the KGB found significance that has not yet countn,
miss work on
th the
and with police agency, for increasing effi- penetrated policy circles," he said. those ho e w who a miss tanks, planes
th
military getting
ciency among farm, factory and go- The report's biggest surprise is
vernment workers. that the Soviets tapered off military and guided missiles than the CIA
THE ASSUMPTIONS in the report _spending apparently to boost civilian had forecast, nature also helped the
appeared to question the Reagan ad morale and improve the overall economic upturn.
ministration's rationale for a drastic economy.-.___. Better weather followed a ruinous
increase in defense spending over Drawing on information from, drought in 1980-81 and new oil fields
the next decade: that the Soviets are sources as diverse as regional news- J and coal deposits were discovered in
rapidly' building up their forces and paper stories published in Siberia Siberia, forcing the CIA to reverse
that the U.S. must match the Soviet and CIA-paid spies in the Soviet ? its prediction that the Soviet
pace. bureaucracy, the report provides a economy would stagnate as energy
President Reagan repeatedly has rare glimpse of what the U.S. intelli- supplies tapered off in the mid-1980s.
described Soviet milita exansion gence community has concluded The CIA observed: "The Soviet
as massive. His administration has about the short reign of Andropov, economy is the second largest in the
. called for a five-year defense build- who now appears to be seriously ill. world, with a large and literate
Andropov replaced the late Leonid population, a huge industrial plant
up that would cost $1.9 trillion, an
Brezhnev slightly more than a year and an enormous endowment of nat-
average 10 percent increase, ad- ural resources."
justed for inflation. ago, on Nov. 12, 1982._-
"THIS YEAR some of the econom- "My own view of the Soviet
Reagan's critics have urged that
is pressures on the Andropov leader- economy," Proxmire said, "is that
he scale back his defense-spending ship should ease slightly,' the report we in the West tend to magnify its
demands to help avoid the massive said. "After two years of-low growth weaknesses and to overlook its
budget deficits predicted for the next in 1981 and 1982, the economy seems strengths."
several years. Reagan, however. -;c .A Pnr rahrn,nA Racotj nn
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in Soviet rate
of spending
Los Angeles Times
WASHINGTON - Contrary to Pentagon as-
sertions. the growth rate in Soviet defense
spending declined in the late 1970s and Soviet
production of military hardware barely grew at
all. according to an assessment by the Central
Intelligence Agency.
The CIA, in a report released Friday by the
Congressional Joint Economic Committee, said
that on the basis of "new information," it had
revised its previous estimate that Soviet defense
spending rose about 4 percent a year between
1976 and 1981. The new estimate, the CIA said,
indicates a 2 percent annual increase.
Furthermore, preliminary estimates for 1982
indicate that Soviet military spending is still
growing at the slower rate even when measured
in constant 1970 prices, the report added.
Although the CIA analysts did not detail the
reasons for their revised estimate. they said that
the Soviet Union did not field as many major
new weapons, including missiles, aircraft and
ships, in the latter part of the 1970s as during
the beginning of the decade.
They said that the "continued slow growth"
of Soviet military power appeared to be caused
by a combination of manufacturing bottle-
necks, technological problems and unexplained
"policy decisions."
Nevertheless, according to the CIA analysis
and the Pentagon's own Soviet specialists, the
level of Soviet defense spending has been so
high for so long that even with a slowdown. It is
well above that of the United States.
In 1981, for example, the dollar cost of all So-
viet defense activities was 45 percent greater
than US outlays, and the Soviets spent 45 per-
cent more on producing new weapons systems
than did the Americans.
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REUTERS
21 November 1983
WASHINGTON
'EAPONS
CAROL GIACOMO
The Pentagon agreed with the Central Intelligence Agency today that
the rate at which the Soviet Union is adding new weapons to its military arsenal
has virtually flattened out since 1976.
Senior intelligence officials from the Defense Department and the CIA cited
a number of possible causes for this trend, including a Soviet decision to
adhere to numerical limits imposed by the unratified SALT-2 arms control treaty.
"In the aggregate what we find, using the dollar index, is that the rate of
procurement has fallen to a point where it is fairly flat," said a CIA
official.
His Defense Department counterpart added: "Production on many models has
declined. Quantities are going down on aircraft frames and tanks." The two
briefed reporters on condition they not be identified.
The two agencies emphasized their consensus on the state of Soviet weapons
procurement, the largest chunk of the defense budget, and downplayed differences
on total Soviet defense spending, attributing them to accounting variables.
The CIA computed overall annual growth in Soviet defense spending from 1976
0 0 1981 at 2 per cent, while the Pentagon pegged it at 6 to 7 per cent.
The CIA official said his agency calculated growth in rubles not
, dollars,
and suggested that when this difference is factored in, the variation between
the two agencies amounted to only about 1 or 2 per cent.
The growth rate of the, Soviet defense budget, calculated by U.S. intelligence
officials by amassing and extrapolating wide-ranging data, has political
implications in the United States.
President Reagan has justified his massive arms program by arguing that
Moscow is engaged in an unprecedented buildup and is committing far more to
defense than the United States.
One intelligence official advised against drawing too broad a conclusion from
their briefing comments, which expanded on a CIA report prepared for Congress
and made public last week.
The data "tells you something about how fast (Soviet) resources are flowing
into the (military) inventory" but does not in itself measure the quality of
Soviet defense, which also depends on training, troop morale and other factors,
he said.
The official noted that the rate of Soviet weapons procurement flattened out
once before, in the late 1950s-early 19605, and rebounded with great vigor in
4W he mid-1960s.
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Z.
He added: "There is every reason to believe that when they can, (the Soviets)
will attempt to return to the dynamism in their military program they exhibited
in the 1970s."
All signs suggest the Soviets have more weapons systems now in the research
and development stage than they did in either of the past two decades, this
official said.
The officials admitted they did not know which causes behind the Soviet
procurement slowdown were most significant.
"There is clearly an-array of pressures that caused this, in addition to some
choices," one said.
He declined to discuss Soviet adherence to the SALT-2 treaty at any length,
saying only that "there were some high-priced weapons systems which got a
numerical cap out of the arms control agreement."
Within those limits, however, the Soviets have modernized some systems
considerably, he said.
10 Other reasons cited were Soviet concern over the cost of new weapons,
technical delays, and transportation problems.
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CHRISTIAN SCIENCE MONITOR
21 November 1983
Soviet two-step on arms control hinds
at Kre~ilin disarray
By Gary Thatcher
Staff writer o' The Christian Science Monitor
?
?
Ustinov: denies
Geneva change
Moscow
The curious case
of the latest Soviet
arms control offer
- made informally
in Geneva, then de-
nied loudly in Mos-
cow - suggests the
Kremlin may itself
be in some disarray
over how to re-
spond to NATO's
new missile
deployments.
Many Western
analysts had expected a last-minute move
by the Soviets to try to prevent the NATO
deployment. They had suggested Moscow
might come up with some apparent con-
cessions at the arms talks in Geneva.
But, when it came, the Soviet two-step
- one forward, one backward - caused
more perplexity than clarity and cast fur-.
ther doubts on who is calling the shots in
the Kremlin.
With Soviet leader Yuri Andropov ab-
sent, - apparently ill, Western diplomats
are wondering whether others are direct-
ing Moscow's moves at the negotiations in
his stead. Some analysts argue that while
some Kremlin civilian officials might
want to be flexible at Geneva, others -
notably Soviet military hard-liners - are
resisting such moves.
Some observers say the world is prob-
ably seeing the outward signs of an inter-
nal struggle between would-be successors
to Andropov, who has not been seen by
Westerners for three months.
First word of the new Soviet arms con-
trol offer in Geneva came from West Ger-
man Chancellor Helmut Kohl. Late last
week he said the Soviet chief negotiator at
the Euromissile talks in Geneva had
hinted that Moscow might drop its de-
mand that British and French nuclear
deterrents be included in the negotiations.
This appeared at first sight to be a So-
viet concession, even though it was part of
a proposal that called for zero NATO de-
ployment in return for a halving rather
than elimination of Moscow's SS-20 mis-
siles targeted on West Europe.
Since negotiations over intermediate-
range nuclear missiles in Europe began in
Geneva two years ago, the Soviets have
insisted that the nuclear forces of Britain
and France should be included in the total
of NATO missiles "in Europe. American
negotiators have refused, arguing the
British and French arsenals are indepen-
dent and not subject to NATO's control.
This has been a major sticking point in
the negotiations.
I 'Washington, White House spokes-
man Larry Speakes confirmed the Soviet
offer but termed it "unfair."
The reason? It would still, according to
the White House, be conditional on the
US deploying no new missiles in Europe.
That, according to the Reagan- adminis-
tration, would preserve the USSR's mo-
nopoly on medium-range missiles on the
continent. The Soviets currently have 243
triple-warhead SS-20 missiles aimed at
Europe and 117 in the Soviet Far East.
But late Friday, the Kremlin denied
any change in its negotiating stance. The
Soviet. news agency Tass distributed a
preview of a statement by Defense Minis-
ter Dmitri Ustinov in Saturday's Commu-..
nist Party daily, Pravda. In it, he re-
_ peated demands that French and British
missiles be taken into account.
The official Soviet news agency Tass
denied the Soviets had given any "sig-
nals" of flexibility in Geneva. There were
"no such signals," Tass said, and there
"are not to be.
Some Western analysts read this as the
Kremlin disowning the stance taken by its
Geneva negotiator, Yuli Kvitsinsky. That
reminded them of the 1982 "walk in the
woods." During that walk, US and Soviet
chief negotiators apparently worked out a
potential compromise on missile deploy-
ments, involving reductions by both
sides. The offer was quickly disavowed
by Moscow, then in effect by Washington..
role NUED
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?
is
The apparently conflicting signals
from the Kremlin are mirrored, in some
measure, in the East bloc as a whole. The
Soviets have vowed to retaliate for the
new missiles by new Soviet deployments
in East Germany and Czechoslovakia.
Czechoslovak Prime Minister Lubomir
Strougal warned West Germany of
"unforeseeable consequences" arising
from the-deployment. Romanian Presi-
dent Nicolae Ceausescu, an East-bloc
maverick, says both superpowers are "de-
fying mankind" with new deployments
and counterdeployments.
Last week, a Soviet official, asked to
respond to Ceausescu, replied tersely,
No comment.
A Soviet official says the USSR is re-
viewing its own nuclear weapons policy.
The debate is much quieter and largely
held behind-the-scenes, he says. Some in-
dicator of how it is going may come this
week, since the Soviets have threatened to
walk out of the negotiations in Geneva
once they become "pointless."
. That has widely been interpreted to
mean when the West German Bundestag
this week reaffirms, as expected, the gov-
ernment's decision to deploy the missiles.
Still, there are some hints that the So-
viets may stay on even longer in Geneva,
until the NATO missiles are actually
operational - sometime in December.
And both Western diplomats and So-
viet sources indicate that a walkout will
probably not be permanent.
The Soviets could return at some later
date, or could offer to include- the Euro-
pear range missiles in the strategic arms
reduction talks (START), which are also
under way in Geneva.
In Washington, meanwhile, Congress
has passed a record 5249.8 billion defense.
bill, clearing the way for continued
buildup of both US conventional and nu-
clear military power.
At the same time, the US Central Intel-
ligence Agency, in something of an about-
face, lowered its estimate of the annual
growth of Soviet military spending
growth.
Since 1976. the IA renortS Soviet
mil,terv s ending has crown by only
about 2 percent a year - half the rate of
earlier CIA estimates, St;l- the CIA
study warns the Soviets spend more for
defense than the US "bv a largp, margin-',
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P~ T1
?
1WALL STREET JOURNAL
21 November 1983
CIA Cuts Soviet Defense-Budget Estimate,
Cites `Leveling Off' in Weapons Building
By GFY u.n F. SEIB
Staff Reporter of THE WALL STRE#T JOURNAL
WASHINGTON-The Central Intelligence
Agency reduced its estimates of the rate of
Soviet weapons construction, a change that
will bolster those who say President Rea-
gan's defense budget is too large.
According to the agency's latest analysis
of the Soviet economy, Soviet expenditures
on procurement of military hardware have
"leveled off" since 1976. The report says the
annual increase in overall defense spending
has been about 2% a year since 1976, down
from an annual rate of 4% to 5% in the pre-
ceding decade.
Previously, U.S. officials estimated that
Soviet defense spending continued to in-
crease at roughly 4% to 5% annually.
"The rate of growth of overall defense
costs is lower because procurement of mili-
tary hardware-the largest category of de-
fense spending-was almost flat in 1978.81,"
the report summariies. "New information
indicates that the Soviets didn't field weap-
ons as rapidly after 1976 as before."
The estimates on defense spending are in
a CIA report to Congress's Joint Economic
Committee. The report, which the commit-
tee released over the weekend, paints a ros-
ier picture of prospects for the Soviet econ-
omy, particularly its energy sector, than
some earlier reports.
In part, the report says, Soviet weapons
procurement has leveled off because the
newer, more sophisticated weapons are
more expensive. In addition, it says, areas
such as operations and maintenance have
taken up more of the defense budget.
Agency analysts stress in the report,
though, that Soviet defense spending con-
tinues to increase and still exceeds U.S. out-
lays. In 1981, the cost of Soviet defense ac-
tivities was at least 25% higher than defense
expenditures in the U.S. that year, the re-
port asserts. Congress has appropriated $249
billion for defense for fiscal 1984.
Sen. William Proxmire (D., Wis.), who
released the report, said the revised esti-
mate of Soviet defense spending "has pro-
found significance that hasn't yet penetrated
policy circles" in the U.S.
In general, the report notes that the So-
viet economy was "sluggish" in 1981 and
1982, when its average annual growth rate
was less than 2.5%. But the report goes on to
note that the Soviets cut markedly into their
hard-currency trade deficit in 1982 by push-
ing oil exports and holding down imports.
In 1983, the report says, the Soviet econ-
omy "seems poised for a rebound." The
CIA's analysts estimate that Soviet gross na-
tional product will grow 3.5% to 4% this year
and that farming, in particular, probably
will rebound strongly.
The CIA also said Soviet energy pros-
pects "are considerably better than we once
thought." The Soviets have avoided the
downturn in oil production once predicted by
the CIA. The agency's new report estimates
that oil production will hold roughly steady
through the mid-1980s, then fall in the
1990s.
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ABC WORLD NEWS TONIGHT
21 November 1983
SR/WEAPONS JENNINGS: The U.S. intelligence community has come to some new
conclusions about the
a
t
hi
p
ce a
w
ch the Soviet union is
modernizing its military. As ABC's John McWethy reports from'
Washington, the latest assessments are something of a'.surprise.
MCWETHY: According to the U.S. intelligence community, the
production of Soviet weapons turns out to be slower than
? previously advertised, particularly in production of new
strategic nuclear weapons, things like missiles and
missile-firing submarines. In a report to Congress, the CIA
claims that since 1976, the growth rate of expenditures on new
weapons has been zero. In other words, since the mid-1970s the
number of tanks, ships, missiles, and aircraft rolling off the
assembly lines has been the same year after year not steadily
increasing as often claimed by the Reagan adminstration.
Intelligence officials cite three possible reasons for why the
purpose and production of weapons has slowed. One, the troubled
Soviet economy cannot meet the military's demands for raw
materials and weapons components; two, the Russians are buying
more and more sophisticated weapons and are finding, just as the
U.S. has, that these cost more, take longer to produce, and can
only be afforded in smaller numbers; three, there may have been
decisions in the Kremlin to slow the growth rate of new weapons,
but no one knows why. Despite the new analysis, Reagan
administration officials say the Soviets still far outspend the
U.S. on weapons, and there should be no change in the
president's five-year, $2 trillion plan to modernize America's
military. John McWethy, ABC News, the Pentagon.
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ARTICLE APT ~ D
0 ca" PgQ~-- 7 WASHINGTON POST
22 November 1983
Soviets Reported
Slowing Rate of
Military Buying
?
S
By Fred Hiatt
Washington Post Staff Writer
Since 1976. the Soviet Union has slowed the
rate at which it procures tanks" airplanes and
other military equipment rather than accelerating
defense spending as the Reagan administration
has suggested, senior intelligence officials said yes-
terday.
The officials, who spoke on condition that they
not be identified, said the CIA believes that Soviet
defense budgets stayed even or increased only
slightly from 1976 through .1982, the last year-for',
which reliable information is available.
Fewer planes and tanks were purchased, as the
Soviets joined the United States in discovering
that increasingly complex military technology
strains budgets. the officials said.
The Reagan administration has sought to jus-.
tify large U.S. defense spending increases' by
claiming that the Soviets have engaged in an un-
precedented military buildup.
The CIA estimate differs marginally from the
assessment of Pentagon intelligence officers, who
agree on the trend in equipment produced but say
they believe that Soviet expenditures have grown.
The senior intelligence officials said their anal-
ysis does not contradict President Reagan's posi.
tion because, even without growth, the Soviet de-
fense budget remains 25 to 45 percent higher than
U.S. spending.
They also. stressed that military spending does
not measure "combat effectiveness," which de-
pends on many factors.
"This has no implication' for the U.S. defense
budget, as far as I'm concerned," one analyst said.
The officials said that not since the early 1960s
had Soviet defense spending slowed as noticeably
as since 1976. The officials said they do not be-
lieve that the trend reflected several years of U.S.-
Soviet detente preceding the current plateau or a
deliberate decision to restrain spending.
Instead, they attributed the slowdown to weap-
ons-testing problems and delays, a "policy-deci-
sion" to adhere to weapons limits set in the SALT
I and II arms-control talks and general economic
problems involving transportation and basic-ma-
terial production.
While insisting that. world events had no impact
on the slowdown, the officials said a Soviet view of
increasing world tension may prompt increased
military spending.
They said the Soviets are developing more
weapons systems than ever and have "expanded
the bases of production."
A decision to increase defense spending would
force the Soviets to abandon plans for decreasing
their citizens' cost of living, they said.
The Reagan administration increased the de-,
fense budget during its first year by about 12 per-
cent in "real," after-inflation growth. That budget
grew by about 7 percent last year and less than 4
percent, this year, and the Pentagon has drafted a
preliminary request for 17 percent real growth
next year.
U.S. officials say real growth in Soviet defense
spending averaged between zero and 3 percent
from 1976-82. The range reflects departmental
disagreements on how to calculate Soviet inflation
and money exchange rates.
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1ARTICLE AP
ON PAAGE,
WASHINGTON TIMES
22 November 1983
Soviet arms spending.: Read the fine print
? Oh, dear. Defense slashers will love this:
A CIA analysis of the Soviet economy esti-
mates Kremlin expenditures for new mili-
tary hardware have "leveled off" since
1976, and overall defense spending has
slipped roughly 2 percent a year over the
same period. If accurate, that would repre-
sent a 4-to-S percent reduction from the
prior decade.
Before anyone starts beating the drums
for a reversal in U.S. defense spending, we
suggest reading the coda to the intelligence
agency's report. CIA analysts stress that
Soviet defense spending continues to rise as
a percentage of GNP and to exceed U.S.
outlays in real dollars - 25 percent higher
than ours in "81, or at least $220 billion
compared to Washington's 5183.7 billion.
Further, by "leveling off" the CIA means
? Defense Minister Dimitri Ustinov's share
of the Soviet GNP remains unchanged at
13.14 percent. Look at it this way: In'81, our
defense share of GNP was 5.4 percent.
Under Mr. Carter, it barely averaged S
percent. Even Mr. Reagan's accelerated
effort has nudged it up to only 6.5 percent.
In any case, it's easier to get Mr. Andro-
pov to attend midnight mass than to get
precise numbers on Soviet military
spending. The figures are hidden under
innocuous categories and sprinkled
throughout the huge Soviet bureaucracy.
Funds for the Kremlin's ambitious long-
range missile program, for example, are
allocated under the budget for the Ministry
of Heavy Industry.
So the CIA report is,at best an estimate.
But you can bet simple and wrongheaded
interpretations of it will abound. No matter.
It'd be foolish verging on suicidal to rear-
range U.S. defense priorities on the basis of
-with all due respect to the agency - what
amounts to an educated guess.
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?
?
ARTI CLE
ON PAGE
WASHINGTON POST
23 November 1983
inberger 1 ~iTOtes G ?
ains In Strength
.By Fred Hiatt tiun for nucl
ear w
d
tion rates have been lower than held steady between 1976 and 198
The . Pentagon said. the budget projected
b
g isca year, ut of cardboard" to $60.
billion defense budget, about . $11 he left some'roori for retreat from 9uestioned about recent CIA es-
billion short of the administratinn'a
p
m,
e
man dis-
. v"?""' ""` more than $5 billion this year. Defense Secretary Caspar W. "It's not an arms racey played for the cameras a screwdriver
Weinberger said yesterday that the ger said: 'What we're. engaging ine is charging t eeNa aI Electric. has been
Reagan administration , has - made ', . an 'attempt to.. regain deterrent for a bombardie s scope on an A6`
"substantial improvements" in 'U.S. strength" .
military strength, attack plane-"this little piece of
but he criticized :The administration last summer, plastic," Lehman said-for. which
Congress-- for--dragging- its feet on projected a defense budget of $321.5 Grumman was charging $1,800. The _-
funding the- president's full buildup. . billion for: frscal 1985. 'W'einberger _ somewhat unusual screwdriver' i
Before leaving town _-last week; yesterday declined- to discuss:- his down to $45, he said, and the 'piece'.
Congress approved -,a record $250 hones for the cumin f - 1
Welnbeceer said the United States
represents only 3 'percent "real" ari, Navy Secretary John -F.--Lehman nonetheless cannot relax its efforts
rual. growth-after inflation-come Jr. also herd g news conference yes. to increase its military strength.
pared with the 7 percent sought .by terday.. to, claim cost savings ,in. con- "The. fact.that there is an enor-
President Reagan, and Weinberger tracts and'spare-parts purchases: mossly lac a amount ofmone ying 1 1, said congressional refusal ,to.fund the '..Lehman said, the Navy: recently - spent by the Soviets for-their mil-
administration's full request will end awarded.. $5.9 billion in contracts,
i machine each year is not dis-
up costing more. spending money :appropriated by -puted and ".-the' .-the' fact` that it's a
"We have a situation in which Congress just last week, and saved great deal more than we're investing
what we need, what's been author- $480 million compared with earlier is not disputed," he said. "We don't
ized, what- we will have to have, will Navy budget ,estimates. ? think we are in a situation where we
cost us more and will take us a little Lehman, who jawboned'McDon- can in any sense slow down the re-.
longer to acquire," Weinberger told a Hell Douglasilast year to lower the gaining of our military strength"
Pentagon news conference. . - cost of F/A18 fighter jets, attributed - . Weinberger noted with satisfac.
The Defense Department budget the lower costs to the 'Pentagon's tion that Congress has funded every
has more than doubled from fiscal . increased emphasis on competition weapons system requested by Rea-
1979, when it totaled $121 billion, to in procurement.
the fiscal 1984 budget of slightly less But he-said spare and repair parts gan
Butc he saide stretching out the
than $250 billion. ._ , continue -to be purchased mostly on procurement time and, in particular,
Neither total includes the military a "sole-source"- basis and to cost refusing to approve multiyear con-
construction bill, which this year ap- more than they should. tracts will increase the ultimate cost
propriated more-than $7 billion, or ..To -illustrate that point, and de- of the buildup by. hundreds of mil-
the Energy Department appropria- monstrate the Navy's commitment lions of dollars.
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eapons pro
uction, to solve the
roble
L
h
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ARTICLE APp
ON PAGE
?
NEW YORK TIMES
23 November 1983
iEINBER(IER LINKS neth W. m,said on Oct. 30 that I and
taliation c comes in many shapes es and
sizes, and we are looking at all of the
options." More recently, however, Sec
SYRIA TO BUM BING retary of State George P. Shultz said
1 O public talk of retaliation should cease.
He Says Damascus Sponsored
Iranians in Beirut Attack
Won't Discount Nicaragua Attack
On other matters today, the Defense
Secretary left open the possibility that
the United States would use military
force against the leftist Government of
Nicaragua. But he insisted that Ameri-
can combat troops would not be sent to
El Salvador despite a deterioration in
By RICHARD HALLORAN the military situation there.
ap emzne;Newy knum. I:- He said relations with the Soviet
WASHINGTON; idov. 22 Union "are not good" for many rea-
af Defense y sons.
Pa? Weinberger said "I don't think they're irretrievable,"
3' that Iranians who ea- 4 he said, but I think that it will require
ploded the truck bomb in the Marine a substantial alteration in Soviet
month ago, with the "sponsorship and
knowledge and authority of the Syrian
i Government."
Mr. Weinberger, who spoke in a news {
conference, did not disclose the source 1
of his information but pointed a finger
directly at the Syrian Government in
what appeared to be the strongest pub-
lic accusation by the Administration on
who was responsible for the attack in
which 239 Americans died on Oct. 23. !
But Mr. Weinberger declined, in re-
sponse to a question, to call it an act of
war.
The Defense Secretary said the evi-.
dence of the Iranian and Syrian connect
tion "is an accumulation of a -number
of reports in which we have consider-
able confidence."
He brushed off questions of reprisals,
saying President Reagan had not made
"any promise of retaliation.".
On Oct. 24, the day after the bomb-
ing;'Mr. Reagan said, "This despicable
act will not go unpunished." In a tele-
vised speech three days later, he said,
"Those who directed this atrocity must
be dealt justice, and they will be." ;
The Deputy Secretary of State, ken.
behavior."
Mr. Weinberger appeared to soften
his insistence that the Reagan Admin-
istration submit to Congress a 1985
military budget that would be 20 per-,
cent higher than the present budget.]
Thenew budget is due to go to Congress
in January.
Mr. Weinberger further asserted
that lower rates of Soviet military in-
vestment reported by the Central Intel-
ience and Defense Intelligance Agen-
d es shoul not slow down United c ates
efforts to expand miliry form.
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ARTICLE AYY~h.AK h?UI
ON PAGE _ -_ 1 __ ii oC7
WASHINGTON POST
23 November 1983
LETTERS TO THE EDITOR
`Knockdown of a Soviet Buildup'
Usually when CIA analysis is reported
inaccurately, we must suffer in silence.
However, in the case of Stephen S.
Rosenfeld's Nov. 18 column, "Knock-
down of a Soviet Buildup," because we
prepared an unclassified version of our
work on trends in Soviet defense spend-
jog for the Joint Economic Committee
of the Congress. I am able to put in
proper perspective Mr. Rosenfeld's ac-
count of our analysis.
He suggests that our analysis of the
Soviet defense effort portrays "a steady
Soviet performance at a relatively low
level" and that the Soviets used detente
..to give themselves something of a
breather." A balanced examination of
our testimony conveys no such message.
We stated explicitly to the committee
that "our latest comparisons of U.S. and
Soviet defense programs show that de-
spite somewhat slower growth in recent
years the costs of Soviet defense activi-
ties still exceed those of the United
States by a large margin. In 1981 the
dollar costs of Soviet defense activities
were 45 percent greater than U.S. out-
lays; procurement costs alone were also
45 percent larger." Moreover, the com-
mittee was reminded that the Soviet de-
fense effort. still is running between 13
and 14 percent of GNP-that is, over
twice the percentage of GNP devoted to
defense spending in the United States.
We also stressed to the committee that
"trends in Soviet military spending are
not a sufficient basis to form judgments
about Soviet military capabilities, which
are a complex function of weapons stocks,
doctrine, training, generalship and other
factors important in a potential conflict-
The cost estimates are best used to iden-
tify-shifts in priorities and trends in re-
source commitments to military pro-
grams over an extended period of time.
Moreover; the spending estimates do not
give an appreciation of the large stocks of
strategic and conventional weapon sys-
tems already deployed. Indeed, current
levels of spending are so high that despite
the procurement plateau noted, the
Soviet forces have received since 1975
about 2,000 ICBMs and SLBMs, over
5,000 tactical combat and interceptor air-
craft, 15.000 tanks and substantial num-
bers of major surface combatants,
SSBNs. and attack submarines."
Finally, it is worth pointing out that
Soviet efforts to develop advanced
weapon systems continue in the '80s at
least at the rapid pace of the previous
two decades. Among these are fighter
and airborne control aircraft, ballistic
and cruise missiles, space systems and
submarines. The new systems cover the
full range of technologically advanced
weaponry the Soviets will need to mod-
ernize all major forces.
In sum, Mr. Rosenfeld's description of
our analysis does not, provide a balanced
account of our testimony to the JEC.
Our costing of the Soviet defense effort
is very complex and susceptible to mis-
representation and misuse. Those who
oversimplify or cite out of context our
work in this important area do not con-
tribute to needed public understanding
of these issues. They also do an injustice
to the professional, independent analysts
in all of the agencies of the intelligence
community working to broaden our
knowledge and understanding of the
Soviet defense effort.
GEORGE V. LAUDER
Director, Public Affairs Office
Washington
Central Intelligence Agency
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ARTICLE APPEARED CHRISTIAN SCIENCE MONITOR
ON PAGE ,'7-
.23 November 1983
Pentagon backs CIA view
on ease-up in Soviet arms
Washington
The Pentagon agreed with the Cen-
tral Intelligence Agency Monday that
the rate at which the Soviet Union is
adding new weapons to its military
arsenal has flattened out since 1976.
Senior intelligence officials cited a
number of possible causes for this
trend, including a Soviet decision to
adhere to limits imposed by the
unratified SALT II arms control
treaty.
_ The agencies emphasized their
consensus on the state of Soviet
weapons procurement, the largest
chunk of the defense budget, and
played down differences on total So-.
viet defense spending, attributing
them to accounting variables. The
CIA computed annual growth in So-
viet defense spending from 1976 to
1981 at 2 percent, while the Pentagon
pegged it at 6 to 7 percent.
President Reagan has justified his
massive arms program by arguing
that Moscow is engaged in an unprec-
edented buildup. All signs suggest
.the Soviets have more weapons sys-
tems in the research-and-develop-
ment stage than they did in either of
the past two decades, an official said.
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CHRISTIAN SCIENCE ISONITOR
2S.Noverrber 1983
?
According to these experts, this change in Soviet.de.
ying '
fen
to d &F. Va se spending, which began in the mid 1970s?has sev
i ? eral causes: The Soviets are.moving into more techno dow n-- vaet
0. .1 i logically sophisticated systems that present design and
t ? __- , I
development problems co
s
n Brad Kniz~rbocker
Dunnup
.~ intelligence analysts say Russians
l tinning into delays, .cost overnIM
Stat venter of The p>nsban Science Monitor
"inwar:1; mey are holding to SALT
I and oth
eragreements tht Liitdi
.am proucton of missiles,.:
submarines, and ballistic missile defenses;- and :.they
have had economic problems that disrupted the delivery-;
of some-supplies to wea builders--
The-bottom line for=the-.CIA'-ii that the rate of
crease is now around 2 percent a year, measured in iu
tiles. The DIA, on the'other hand, says the figure should
be 6 to 7 percent: The difference-is in whether to:.count
inflation in th
S
i
U
e
ov
et
nion Th CIA itbo
.e puts at aut 3
pe
cent D
r
en n intellieffiil
genc ocas say its very
You're an analyst at Central Intelligence A
asi~ gency cally a barter-econom do snd tmheerref no dissrotha its bash-
headquarters or the Pentagon and have the following as. -'What they both
six anent: The Soviet Union has many more.fighter air- and said, `bet's beat otu swon is that '
ords into y to body sat back.
Graf;, than the-United States, but-US pilots fly more so one senior P ughshares'," es
ph stic:ated planes and get intelligence official Put .it. Measured .hart
hone gate combat 50 percent more flying timeto bles,"they says the Sstill spends 25 percent'
skills. Which country. will prevail in more on
Procurement than the S. Measured in
time of war7.,How should these facts affect US defense dollars, the
ef
spending? figure NmPs to 45 percent
"When you spend a uarter to almost half
of questionthat endlessly te Unitd States q again whatto US intelligence expertsT'heyare spends. -You a cn?Put a lot of new stuff
d ineti-ita y. subjectiyE the field without having any growth in your _rate,of
?Thesearehekjnds
e bly
olitic
l Y
th
p
a
et
ey arecil t diis sdi"id
"rucaoecsonpenng sa one intelligenceexpert. "This "is a coon
n gton that Will certainly affect the.country_'s xe try with 50,000 tanks and they're still producing 2,500a.
sPurces and could determine its survival. Year The US builds 700 to 800 new tanks a year.
According to recently declassified intelligence esti~i officials say they first noticed the flattening ma..es, the Soviet Union over the past few years has six= of Soviet
J defense increases several years ago, but assumed it
n ficantly flattened its rate of increase .-q
"
spend
-
9. ing. In the procurement of new weapons, the growth rate
has dropped :to about zero. Pentagon critics have seized
cn this to prove their point that administration plans to
? re.ann.A-nerica" are too grand. Proponents of a-stron-
ger defense emphasize the half full part of the intelli-
gence glass: that the Soviet Union, despite an apparent
show r i shill
d
.
more weaponry
than the
US.
U S. And as usual,.the experts who gather and analyze
such data are caught in the middle.. , : .
"This stuff gets all twisted around in some of these
budget.debates," grumbles one frustrated senior intelli-
gence official. "We habitually get wrapped around. the
axle. -hag to explain these things."
defense :,att. intelligence ?wa am t.ue rneLornc and eV t,
agency officials explained one. "The most important thing is said.
the recent reports on Soviet economic choices they make." ng to be someofthe
`?red fascina insight into how such spending
Am ~d f- . Most rat US
things deter- xnteliigeaoe anal n
mined, why the internal debate among CIA and ,DIAde:~Yun '_dropvv .n
lDefjMSe Intelligence Agency) analysts here. is ..8lmost mtLtary endmg?" ted FOne
the
o opcal, and what significance it.ha.s for US defense
ORning.
pro
4 ~,
uces a lot
~- .. ' ~.~ aae. n' pen It ;
kept happening, they re ta_ized they had a longer trend..
Why did it take so long to figure this out?
This is the kind of question that hurts," said one
senior intelligence offic
there on ial. "We think we're rigs out
the frontier of getting a glimpse into this to
society. But it takes a long time for us to accum
evidence to make these ' Mate the
trail by several judgments, and the judgments do
better at years.... Don't quote me, but were no
predicting their technical
bl
pro
ems tha we
ne ar .
rat Predicfing our own - _, e
Taus
Tn 0 ? heZ?tate to say what will
follow `..
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?
But, warns a senior intelligence official: "All'f the
signs we're looking at suggest that the Soviets have-more',,
systems in research and development today than they've
had in the last decade or any decade before that, that
they have expanded the basis for modern systems pro-
duction, that they see the world situation as one which is
more serious than they saw it in the mid-1970s, and that
there is evens, reason to believe that when when can, they
sift attempt to return to the kind of dynamism in their,
military programs that they exhibited during the -early
1970s." Which sounds very much like what the United.'
Staths is doing.
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6 Monday, November28, 1983 DEFENSE WEEK
?
?
?
SOVIET DEFENSE
Spending Reaches High Plateau As U.S. Continues Huge Increases
The Central Intelligence Agency, in a major reassessment of its data and analysis on Soviet weapons production,
has concluded that the USSR reached a prolonged plateau in military hardware spending as long ago as 1976. The
weapons budget apparently has hardly increased since that year, according to testimony to the Joint Economic Com-
mittee which was released last week.
"Unlike our past estimates," the CIA report says, "the new evidence incorporated in our present estimate indicates
that in at least one area, procurement of military hardware, Soviet expenditures have leveled off since 1976.... The
Soviets did not field weapons as rapidly after 1976 as before. Practically all major categories of Soviet weapons were
affected-missiles, aircraft and ships."
Total Soviet defense costs,
measured in constant 1970 rubles,
grew at an average annual rate of
four to five percent during the
decade from 1966 to 1976, the CIA
believes. The new estimate, though,
shows that the growth in the
economy and in the defense sector
slowed since 1976. "The rate of
growth of overall defense costs is
lower because procurement of
military hardware-the largest
category of defense spending-was
almost flat in 1976 to 1981," the
CIA said.
The Defense Intelligence Agency,
which has its own view of Soviet
military spending, apparently con-
tinues to believe that Russian spen-
ding is on the rise, however. Defense
Secretary Caspar Weinberger last
week said that there is "a difference
between the agencies as to the rate
of increase." He said it was "a
small technical dispute." And
Weinberger, who time and again has
used the growth in Soviet military
spending as justification for his own
department's rapidly increasing pro-
curement budget, said there is no
question that the Soviet Union
spends more on defense than the
U.S.
It takes a long time for the CIA to
gather data about Soviet defense
spending and to prepare analyses
like this one, which set off a new
round of debate in Washington over
what some view as the need for
mammoth increases in America's
defense budgets. The intelligence
agency remains about two years
behind the pace of Soviet decisions,
and thus has had little time to
analyze changes in Soviet military
spending that may have come with
the rise to power of Communist
Party Secretary Yuri Andropov.
The latest CIA estimates were
prepared before it became clear ear-
ly last month that the new Soviet
leader himself is seriously ill.
"We have only very preliminary
estimates available for 1982," said
the CIA. "They indicate, however,
that the trends in both total defense
expenditures and procurement costs
that we have observed since 1976 are
continuing. The growth in total ex-
penditures still appears to be con-
siderably below the long-term
average, and procurement spending
remains roughly unchanged
although at a high level, when
measured in constant 1970 prices."
Although the new report was seiz-
ed upon in some quarters as proof
that the Pentagon has been exag-
gerating the Soviet threat all along,
the CIA itself emphasized that its
statistics are prone to error, and that
spending is not the sole measure of
military might.
"It should be stressed that trends
in Soviet military spending are not a
sufficient basis to form judgments
about Soviet military capabilities,
which are a complex function of
weapons stocks, doctrine, training,
and other factors important in a
potential conflict.
"The cost estimates are best used
to identify shifts in priorities and
trends in resource commitments to
military programs over an extended
period of time," the report said.
"Moreover, the spending estimates
do not give an appreciation of the
large stocks of strategic and conven-
tional weapon systems already
deployed. Indeed, current levels of
spending are so high that despite the
procurement plateau noted, the
Soviet forces have received since
1975 about 2,000 intercontinental
ballistic missiles (ICBMs) and sub-
marine launched ballistic missiles
(SLBMs), over 5,000 tactical com-
bat and interceptor aircraft, 15,000
tanks and substantial numbers of
major surface combatants, nuclear-
powered missile submarines, and at-
tack submarines."
By the CIA's estimate, Soviet
defense costs exceeded those of the
United States by 45 percent in 1981,
as did weapon purchase costs,
despite the larger size of the suppor-
ting U.S. economy. Indeed, it is the
inevitable strain of military spen-
ding on the economy which may
have caused the plateau in weapons
buying. In the Soviet Union, the
CIA estimates, weapons cost about
25 percent more to buy than in the
United States.
"The slowdown in the growth of
military procurement cannot be ex-
plained by any single factor," said
the CIA report. "Initially, at least,
the absence of growth in military
procurement might have been at-
tributed to natural lulls in produc-
tion as older weapons programs
were phased out before new ones
began. The extended nature of the
slowdown, however, goes far
beyond normal dips in procurement
cycles. The continued slow growth
since the late 1970s seems related to
a combination of complex factors
including technological problems,
industrial bottlenecks and policy
decisions."
The CIA asserts that Soviet spen-
ding on defense takes up about 13 to
14 percent of gross national pro-
duct, or roughly double the
American share of GNP spent by
the Pentagon. But contrary to
previous expectations, the Soviets
have not been increasing this crucial
ratio.
Nor is the CIA persuaded that
Andropov will make any substantial
changes in the course set by Leonid
Brezhnev during his heyday. "An-
dropov's position on the share of
resources that should go to the
military is unclear," the new assess-
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?
ment said. "The little evidence that
is available indicates Andropov has
not accelerated Soviet military spen-
ding."
This may be because of the
economic pressures to invest in
Russia's ailing civilian sector.
Military buyers must compete with
civilian consumers and industrial
factory managers for scarce
resources. The CIA expects this
competition to become "increasing-
ly fierce." The leveling off of
weapons procurement in recent
years coincided with an increase in
the share of machinery alloted to
civilian uses, the report said.
"While we cannot be sure what
Andropov's policy is, or will be,
Soviet military capabilities will still
increase substantially over the next
several years even if the rate of
growth of procurement of military
hardware does not increase," con-
cluded the report ominously. "The
USSR is already investing so much
in military hardware that merely
continuing procurement at the ex-
isting level would provide very large
annual increments in holdings of
military equipment."
?
And the report suggested that the
military, which helped bring the
former KGB chief to power a year
ago, may be pressing Andropov to
speed up defense spending
regardless of the economic conse-
quences.
"In the first three years of this
decade we believe the Soviets have
already had as many systems under
development as in each of the
previous two decades. Steady ex-
pansion of production floorspace
has occurred since the mid-1970s
providing the Soviets with the
potential to translate the new
systems into deployments in the
field, the paper said. "Any major
effort to sharply accelerate the level
of military procurement, however,
could make it even more difficult to
solve the fundamental economic
problems facing the Soviets."
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ARTICLE APPEARED-
ON PAGE_ L1
NEWSWEEK
28 November 1983
Day
eal'& Dep1oy
Moscow may scuttle the arms talks, but Washington still hopes for a deal next year.
n a quiet Sunday in Geneva
c
?
?
, o
tet NATO into backing down, without giving
arms negotiator Yuli Kvitsinsky tele- up anything in return. Reagan and his allies
phoned his American counterpart, Paul called their bluff, despite the mass protests
Nitze, with an "urgent" request for a meet- in Western Europe this fall. Italy's Parlia-
ing. The two men had exchanged ideas in- ment formally endorsed deployment last
formally mans times during nearly two week. West Germany is expected to follow
years of negotiations on intermediate-range suit this week, and the first Pershing II
nuclear weapons in Europe. In July 1982, missiles may arrive on German soil almost
their celebrated "walk in the woods" out- immediately afterward.
side Geneva yielded a compromise formula
Political tensions are by no means over in
that seemed to hold promise-until both West Germany; last week the opposition
Washington and Moscow vetoed it. Now Social Democratic Party came out against
Kvitsinsky wanted to try again. That after- deployment, shattering a consensus on de-
noon, he and Nitze met at a park in Geneva fense policy that had kept the country on a
to search for an 11th-hour understanding steady course for nearly 25 years. But if
that might head off the deployment of new NATO can keep its collective nerve-and
U.S. missiles. But the "walk in the park" led there's no sign that it won't-the arms talks
nowhere. The next day, the first shipment of just might get back on track in time for an
cruise missiles arrived in Britain, and de- election-year breakthrough.
ployment finally began. As the deadline for deployment ap-
For a while, there will be hell to pay. proached, both sides made halfhearted at-
Antimissile protests will continue all over tempts at compromise. Reagan put on a
Western Europe, with demonstrators ac- show of flexibility by proposing a "global"
cusing Ronald Reagan of turning their limit of 420 intermediate-range warheads
homes into targets. In the United States, for each superpower. That would mean a cut
meanwhile, fact and fiction may combine to in NATO's deployment plan, under which
produce agonizing second thoughts about 572 Pershing and cruise missiles, each with a
the wisdom of nuclear deterrence. ABC's single warhead, are to be installed in West
horrific "The Day After" (NEWSWEEK, Germany, Britain, Italy, Holland and Bel-
Nov. 21) posed such an emotional challenge gium during the next five years. Reagan
to Reagan's hard-line policies that Secre- wanted a corresponding reduction from the
tary of State George Shultz was ordered Soviets, who currently have 243 triple-war-
before the television cameras on Sunday head SS-20s aimed at Western Europe and
night to pledge allegiance to arms control another 117 deployed in Asia. Moscow re-
and stand up for a strong defense. Moscow fused to accept any U.S. deployment and
will try to play on the anxieties about nucle-
ar war. It may retaliate for deployment by According to U.S. officials, Kvitsinsky
fielding new missiles of its own, and it is hinted at another proposal that represented
likely to make good on its threat to walk out
of the Geneva talks at the end of this week's a slight softening in the Soviet position. He
session. said that if Washington offered to cancel its
Bhff. Now that deployment has begun, entire deployment, the Soviet Union would
however, Moscow is on the defensive even reduce its own European arsenal of SS-20s
more than Reagan. The Kremlin gambled to about 120 missiles. Moscow also would
and lost. In 1979, the NATO allies agreed to surrender an important bargaining chip, its
start deploying a new generation of missiles insistence that 162 British and French mis-
at the end of this year unless agreement was riles be included in any superpower agree-
reached on withdrawing some of Moscow's ment on theater weapons. Instead, the Brit-
powerful SS-20 missiles from the European ish and French missiles would be dealt with
theater. The Soviets hoped they could bluff in another forum, possibly the parallel ne-
gotiations on strategic-arms reduction.
C0]\7I'\7'ED
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Kvitsinsky's demarche fell so flat that by hind the "two-track" NATO policy that
the end of the week the Soviets were claim-
ing it was all Nitze's idea. "Every proposi- c called its nnlcclearent forces year Europe. Now,
tion the Soviets have made to us would leave
the United States with zero and the Soviet under chairman Willy Brandt, another for-
mer chancellor, the party is moving back
Union with several hundred warheads," !
said the neutralist doctrines it advocated
id Assistant Secretary of Defense Richard in the 1940s and '50s. After the SPD's gov-
Perle. "Their basic objective is to kill our Prnment fell in )?982, Brandt convinced his
deployment while preserving the monopoly
they colleagues that the party could regain pow-
ploy, enjoy." Reagan didn't go for the by appealing ,to peace-movement
ploy, and neither did his European allies. er only members who had taken to voting for the
Surprise: Despite all the anticipation, the
actual afrival of cruise missiles in Britain counterculture Green Party. He also ar-
came as something of a surprise to the anti- gued that West Germany's future economic
missile movement, and apparently to the health depends on its trade with the Soviet
British government as well. Most of the bloc, which could be interrupted by a new
protesters camped outside the air base at cold war.
Greenham Common were still asleep when Brandt pressed the attack at last week's
an American transport plane landed in the party convention. "The two superpowers
early morning and began to unload the mis- are stronger than is healthy for the rest of the
siles in their long, canvas-covered contain- world," he said. "In this situation, it would
ers. Defense Secretary Michael Heseltine, advisable for Europe to increase its
who was visiting another military base at
the time, politically and in defense." Brandt
me, had to rush back to London to
inform Parliament that the eagle had land- was careful not to call for West German
T h
h
d
?
no
ca
, a o e er a lackey to the
Americans." "You are talking absolute
rubbish," the Iron Lady replied.
The Italian government had an easier
e sai
t e
withdrawal from NATO, but
ed-apparently a day early, in order to fore- alliance needed a "shift in influence." Look-
stall demonstrations. ing tired and old, Schmidt made a forlorn
The protesters revved themselves up any- effort to stem the tide. Conceding that
way. About 300 of them were arrested out- ! Washington was partly to blame for the
side Parliament. In Manchester, a picketer failure of the Geneva talks, be insisted that
squirted red paint onto the unfortunate He- "so long as there are Russian missiles in
seltine as other demonstrators chanted: Eastern Europe, the United States must re-
"Better red than dead, Michael!" At Green- main engaged in Western Europe." When
ham Common, 140 protesters were arrested the speeches were done, the delegates voted
for blocking roadways; they warned that overwhelmingly to oppose deployment.
bigger confrontations would occur when Deployment was under way nonetheless,
the mobile missiles were driven out of the and it was likely to provoke a belligerent
base for operational testing. And in the reaction from Moscow. In Geneva, the So-
House of Commons, Prime Minister Mar- viets warned that they would walk out this
garet Thatcher had to endure a scathing week if the Bundestag voted to accept Per-
attack from opposition leader Neil Kin- shing IIs. The current round of talks was
~k h
ll d h "
time of it as Parliament voted, 351 to 219, to
accept deployment of cruise missiles at a
base in southeastern Sicily. In West Ger-
many, the only country scheduled to receive
the more lethal Pershing Us, the govern-
ment expected a similar outcome when the
Bundestag votes this week. "The Soviet
Union played a daring poker game and for a
long time did not believe, or did not seem to
believe, that we would ... deploy," Chan-
cellor Helmut Kohl said during a television
interview. With a 60-seat edge in the Bun-
destag behind him, Kohl believed that the
game was over.
The Social Democrats thought it was just
beginning. In 1979, their own chancellor,
Helmut Schmidt, was a prime mover be-
due to end soon anyway, but the Soviets
may well choose to cut if off with a flourish,
In addition, Soviet Defense Minister
Dmitry Ustinov said the Kremlin would
respond with new SS-20 deployments in the
European theater and the introduction of
new tactical nuclear weapons into Eastern
Europe. He also warned of measures aimed
directly at U.S. territory, so that "the
Americans will be bound to feel the differ-
ence between the situation before the de-
ployment of their missiles in Western Eu-
rope and after it." Ustinov didn't specify
what steps would be taken. But Pentagon
officials thought the Soviets might station
.SS-20s in Siberia, within range of the West
Coast, or deploy SSN-X-21 cruise missiles
aboard submarines operating off either
American coast.
The actual depth and intensity of Mos-
iCONTIVL
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cow's reaction to deployment will be diffi-
cult to predict as long as it remains unclear
just who is in charge at the Kremlin. Presi-
dent Yuri Andropov was still in mysterious
seclusion last week. In his absence, rumors
flourished; one London newspaper even re-
cycled the tired old story that Andropov
bad been shot by a disgruntled member of
the Soviet establishment. Western diplo-
mats in Moscow were inclined to believe
that Andropov was suffering from a kidney
a;lment. His next obligatory public appear-
ance is a meeting of the Supreme Soviet,
which has been scheduled for late next
month, apparently to give him as much
recovery time as possible. Meanwhile, the
tough Ustinov seemed to be Moscow's point
man on the deployment issue.
Reading Soviet intentions and capabili-
ties has never been Washington's strongest
suit. Reagan maintains, for 'example, that
the Soviet economy is crippled, but that the
Kremlin is pushing its military buildup,
come hell or high water. Last week a new
CIA study suggested that the president was
off target on both points. It said the Soviet
economy was on the mend, predicting a
relatively healthy growth rate this year of
3.5 to 4 percent. It also found that the growth
ofSoviet military spending began totaperoff
S as long ago as 1977.? Since then, military
spending has increased by about 2 percent 'a
year, less than half the rate that prevailed
from 1966 to 1976. The CIA reported that
"procurement of military hardware-tbe
largest category of defense spending-was
almost flat in 1976-81." The bottom line
seemed to be that the Soviets are m orefornii-
dable economically, and less single-minded
militarily, than Reagan believes.
Despite the clouds in its crystal ball, the
administration believes that the start of de-
ployment will not keep the Soviets away
from the bargaining table for long. Some
high-ranking U.S. officials believethe Gene-
va talks may resume as early as mid-January.
That forecast could prove to be overly hope-
ful. But the Soviets may be realistic enough
to recognize that they failed to stop deploy-
mentby political means and that thetimehas
come for serious negotiation. The United
States is in no hurry to deploy all 572 of its
new missiles. If the Soviets decide that a
small deployment is preferable to a large
one, there will be plenty of time left in which
to find a reasonable compromise. Whatever
qualms Americans may feel on the morning
after "The Day After," there is still reason to
S believe that arms control can play its part in
averting a nuclear catastrophe.
RUSSELL WATSON with KIM WILLENSON and
JOHN J. LINDSAY in Washington,
RONALD HENKOFF in Geneva,
ROBERT B. CULLEN in Moscow,
THEODORE STANGER in Bonn and bureau reports
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ARTICLE APPEARED VILLAGE VOICE
ON PAGE 3
?
29 November 1983
PRESS C
By Alexander Cockburn
Arms Race
Over- -Suppose Reagan will be calling the whole arms race
off, now that it turns out that increases in the Soviet
defense budget, long hailed as even bigger than the sum
total of ? the annual . salaries of 'Dan Bather, and .Bill
Moyers, have been modest in the extreme since 197& The
New York Times reported this interesting bit of informs.
lion -in a story on page 6 of its Saturday edition..
. The CIA now says that the rate of growth of Soviet
military spending from 1976 tto'the present is half what
it was in the preceding -decade, from 1966 to 1975.
Whereas . in the earlier period Soviet .military outlays
were supposedly increasing by 4 to 5 per cent a year, they
are now growing, says the CIA, at about 2. per cent a year.
::The 1984 Pentgon budget represents a.5 per cent real
increase, ,discounting inflation,-,over'the '83 levels. Cap
Weinberger, irked at this paltry surge, is hoping to get a
'17 per cent .hike nertyear.
~.:: .. '
In'short, the Russians are* bunch of pacifists, barely
sustaining areal growth in their military 'spending. Are
they men or mice?' In the. primaries for the General
doubt Secretaryship, Andropov's would-be successors will no
charging "a decade-of neglect" and "a window
.of vulnerability."
Of course all CIA' tes of Soviet mMtary per-
formance are extremely suspect, in that they are calcu-
lated on the baiis:.of US . military -costs. In Ernie
Fitzgerald's immortal words, "Every time there's a cost
overrun- on the B-1 bomber; the'Soviet defense budget
goes up." In this casethe lowered estimate is based on the
fact that the Soviet Union is producing fewer weapons. !
Thus there's probably-some truth in what the CIA says.
-Given Reagan's perpetual exaggerations it's an impor-
tent story. The NYT - and other papers gave it serious.'
.space. Puzzling all the same why they waited till Novem
'her 19 to break the news. The Joint Economic Commit-
tee, which released :the CIA statement, ' has -tried to
publicise these conclusions four time already this year.
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WALL STREET JOURNAL
6 December 1983
-V by the CIA Undershoots Soviet
Ln, Xk%,Wzov - , Soviet output in order to make Its military
Every year the Central Intelligence setor look small. Thus, this office claims
makes public two estimatecru-that the Soviet national its in dollars
r can
Agency cial for Western policies: "Soviet defense erwas. as of part. The e976, CIA's 67% of ts American c
spending" and its rate of growth. The GNP rdollars for latest the e same year Se year is
agency's latest numbers are being used to 73 ratio a favorable e ss
down the deed for a U.S. reamament T3.7%-more to the Soviet econ-
play polio Some background than the national income ratio. Actu-
Y. ground is in order. ally, the GNP ratio must be far less favor-
Before 1976, the CIA's estimate of So- able to the Soviet economy than the na-
viet defense spending hovered around 6?o tional income ratio, -since the latter disre
of the Soviet gross national product- gards services and plant depreciation. and
roughly matching the American percent-
age. The "Soviet defense burden," the CIA S is precisely those two areas that the
stated in 1973, "`is no Soviet economy y lags farther behind the
greater than that of U.S. than it does in'-goods.
the United States," and the "Soviet share The CIA reports give no sources for
bf gross: national product spent on defense data. An American unfamiliar with the So.
'has been falling." This good news nurtured viet press is likely to infer that those are
detente and sapped the stronger defense secret intelligence sources. Actually, they
policy. In 1976, the CIA announced that ev are "open" Soviet books and pamphlets-
ery year it had been making a 100 %o error: i.e., Soviet propaganda-since the CIA has
Soviet defense spending had been closer to never been able'to obtain 'closed" Soviet
12;'0, not 6%, of GNP, and had been grow- statistics.
mg since 1966 at 417o to 5%. It was time for In its American-Soviet GNP compari-
detente to wane and for defense to wax. sons, the CIA uses a methodology appro-
According to the CIA's testimony this priate for comparing the GNPs of the U.S.
year before Congress's Joint Economic ' and, say Western Europe. Thus the CIA
Committee, released to the press last ignores, in terms of both cost and value,
as a 66-page report, Soviet defense the Soviet lack of Western diversification,
has been growing not at 4% to innovation and sophistication of consumer
ut at "about 2% a year ... because goods and services, as well as of trade It-
procurement of military hardware-the self, whereby the right goods and services
largest -category of defense spending-was reach the right customers at the right .
almost flat in 1976-81." And, according to time. Using the CIA's methodology, It can
"preliminary estimates available for be proved that even Soviet labor-camp in.,
1982," the "trends .. , are continuing." mates consume, in terms of dollars or.ru?
Now It is time for opponents of Mr. Rea- bies, not so much less than median-income
gar's defense policy to rejoice. Americans.
That the CIA's estimates of the Soviet Having inflated the Soviet GNP more
GNP share spent on defense are absurd is than Soviet propaganda
obvious at a glance. ? About 300.000 engi- if only for that reason, " ovietd CIA
neers and.400,000 "junior engineers" are spending" as an absurdly low
? percentage
graduated in the U.S.S.R. annually, and
of GNP.
hall -of these 700,000 go into the military
sector; in the U.S., 60,000 engineers are There are other reasons. As is clear
pp4--Int r ,r,'P~P/:p "ED
a t; V f'
graduated, and only one-fifth of them go even from the reports, the CIA has no hu-
into the defense Industry. The expenditure J man agents at -the top of the Soviet infra-
ratio In this area is thus almost 60 to !, structure. Thus, it can perceive and evalu-
considering the fact that the pay of ate the weapons tested, built or deployed
military engineers is on the average twice under optically or electronically observ-
as high as that of civilian engineers. How able conditions, but not the weapons devel-
can the Soviet economy pay for such ratios oped, produced, stored or deployed on opti?
if Soviet defense spending as a share of cally and electronically closed premises. It
GNP roughly matched its American count- can't know to what extent each "civilian"
.
g
,
erpart according to the pre-1976 CIA, and institution works as a military one. With Recently, former Soviet economist Igor
is only about twice as high according to the the greater importance paid nowadays to Birman -made a painstaking study showing
post-1976 CIA? 1 high-technology surveillance, as opposed to that the CIA doesn't know the Soviet econ-
The key to the CIA calculus is the So the former belief in the necessity of agents omy as it exists, but as it seems on the
viet GNP. Yet the CIA can't now calculate In place, the discrepancy between what is I basis of purely American experience and
Tv'P for the U.S.S.R.., if only because observed by the CIA and what actually oc- open., Soviet statistics. The CIA has
viet goods and services are priced curs has only widened. Nor does the never budged, and possibly never will.
t; and few of them cart be sampled agency allow for the fact that civilian pro- evaluated, since they are foisted on duction mainly receives those human and
So riet consumers far from foreign eyes: other resources rejected by the military.
Predictably, the Soviet Central Statist- While 'the CIA's "Soviet defense spend-
ical Office inflates the value of the oveiail ? ing" is an imaginary "shaggy dog" that
the CIA car. reshape at will, the rate of
that spending's growth is an imaginary
flea on that imaginary dog: If the CIA an-
nounced in 1976 that its "Soviet defense
spending" bad been wrong by 1005, how
can the CIA presume that it increases at
"about 2%" and not 4% to 5P%?
"The slowdown in Soviet ? military
growth" is the only new fact In the CIA's
testimony this year. Just Like its predeces?
sots, It is a digest of the Soviet press. Thus
we learn that in 1952 the Soviet economy
produced 147 million tons of steel, compared with 66 million tons produced in the""
.S. But what does the regime do with all
that steel, considering bow little goes into
can, housing and highways, and -consider
ing how much rolled steel ($5.3 billion a
year) the regime imports? The answer is
missing in this year's CIA report, just as it
was missing 10 -years ago.
The -CIA report abounds in slogans
lifted 'unthinkingly from the Soviet press.
"Production of fruits and vegetables
reached record levels.... " "Meat output
.. reached a record level ........ Rail.
road performance has also , improved
markedly.... .. Andropov's regime "has
shown concern for the welfare of the popu-
lation.. " The latter is a Soviet cliche
In use since 1918.
In 1977, the CIA made the groundless
and indeed preposterous prediction that
the Soviet economy faced an oil crisis; this
year, the CIA explains that the Soviet
economy "has thus far averted the down-
tam In oil production ... by virtue of an
enormous brute-force development effort.
.., " as though there is a Soviet national .
development effort that can't be credited
to brute force.
The CIA is a closed, noncompetitive bu-
reaucracy that is practically unopposed,
since most of the major news media agree
with its intelligence. All attempts to expose
its scholastics have failed. Thus, in 1978 1
submitted to the CIA a 150-page analysis of
its reports and then distilled my paper into
an article for Commentary that Ronald
Reagan and his associates hailed enthusi-
astically. But that applied to Jimmy Car-
ter's CIA. When the CIA became Mr. Rea-
the enthusiasm evaporated
an's
Mr. Navrozov, a Russian emigre, writes
frequently on Soviet affairs and intelli-
gence matters. ? .
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?
?
?
Christian Science Monitor, January 21;?, 1984 p. 7
Slower. rise=fore Soviet
spy to The Christian aclance Monitor ?.. ''There is evidence of large numbers of
Brussels new programs at the. research and devel
The momentum of `Soviet military opment stagethe recent summary'
spending in the last several years has notes. 'It specifies thatabout as many sys-
slowed to about half the rate sustained in'~ tems are in the development stage at the
the early 1970s, according to-the` outlines-,beginning of this decade as there were at
of a study by NATO experts. 'the beginning of the 1960s and'70s.
The report is a short update of a more "It is projected that more systems will
complete, study by ' NATO and national reach initial operational capability in the
experts lash year. That 1980s," it adds, "than in
report had already
OW either the 1960s or
hinted at a possible 1970s.
slowdown in the Soviet r s Among the new So-
ey David Fouquet . to the armed forces
the 1970-76 period and `MnrpSoviet systems will systegis, and. sua-
about 4 to 5 percent in cruise missiles, space
Union's military ' . z x o
v~i- Viet. weapons systems
buildup because of said to be approaching
emerging economic and such a level of readiness
production 'difficulties. are fighter,airborne
It estimated increases in warning, and control
Soviet arms spending of Soviet surface-to-air missiles aircraft, ballistic and
against some - official ..
in the 1960S or 1970S.' duction facilities have
American and other been . expanded, which
pronouncements, :? that ':t-'' could imply a resump-
still paint a portrait of a'relentless Soviet `tion of the rate of Soviet defense growth of
arms drive. Nevertheless, they underline the early 1970s'?`:
that Soviet military outlays between 1976 The slowdow>d;in recent years could
and 1982 `:'continued at a very high level" have' resulted from` a general Soviet eco-
and that the Soviets could be on the verge nomic slump,, supply bottlenecks, or diffi
.of, introducing a large number `of' new"` culties in introducing 'advanced technol=
weapons programs. . ogies, rather than a formal policy decision - 1,4 Between 1976 and 1982, large , Panti:`r from the leaderphip
'ties of equipment -includin g 15 major , ' , The report also concludes that "any
surface ; , combat ships, "about 2,500 .major effort to accelerate sharply the level
intercontinental nuclear missiles and sub-^' of military procurement could exacerbate
marine-launched missiles, 6,000 tactical Soviet economic problems and would
combat 'and interceptor aircraft, and pose particularly difficult choices of re.
about 15,000 tanks'- have been delivered ' source allocation."
J976 i61982. .-reach initial operational i ?, The -NATO report
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Defense apenuing; V n u le UV JL 17 V V LC I CLL U U'.kS
Tothe Editor: are. A Soviet worker in the civilian cony. As such, spending should be ex-
Adams's Jan. 10 OP-Ed ar- economy is far less productive than his pressed as a percentage of society's
?
?
?
tp fotmded assertions which 4eny va- the military is less. Yet it does not fol- coming up with a dollar expression of
Tense spending under President Rea-
gan has been unnecessarily high.
Mr. Adams begins by saying the
Administration's defense budget is
based on estimates of Soviet military
spending. He maintains these esti-
mates "vastly overstate" actual
Soviet arms spending because of the
methodology used.
Then, shifting ground, be implies
the Administration rejects the spend-
Ing estimate (i.e., input) approach,
focusing instead on "production and
large stockpiles" of Soviet weapons
", : (outp t measures). This latter ap-
t"-"*oaidi fafls toj our b , aa-
cording to Mr. Adams, because the
strategic and conventional military
balance is approximately even.
Mr. Adams's statements about the
military balance are not supported by
argument, and his vague reference to
data amassed" by various authori-
fles is no substitute for analysis of this
critical issue.
More interesting is his contention
that the C.I.A. overstates Soviet mili-
tary spending by estimating what it
would cost the U.S. to match the
Soviet level of military output.
'bur wage and material costs,"
says Mr. Adams, "are higher than
Moscow's." In the strictest sense, they
low that the C.I.A. has been overstat-
ing Soviet arms spending or that our
defense budget is too high. Consider:
? The only valid criterion on which
to base the U.S. defense effort is Soviet
military output - both in quantity and
in quality. We must be able to match
Soviet military capabilities to the ex-
tent necessary for deterrence.
? Soviet military spending is rele-
vant as an indicator of the priority as-
signed to the military sector, and the
burden this sector places on the econ-
THE NEW YORK TIMES, FRIDAY, JANUARY 27, 1984
rough idea of absolute levels of re-
source commitments to the Soviet
military sector. Since most Americans
are unfamiliar with the Soviet econ-
omy, it is hard to visualize X percent
of Soviet G.N.P. But we know that Y
billion dollars represents so many
man-years of trained personnel, so
many vehicles, ships, etc., in our own
economy. For this purpose, the C.I.A.
methodology, so derided by Mr,
Adams, is entirely appropriate.
Mr. Adams seems to think that the
dollar figure for Soviet arms spending
should be based not on American re-
source costs but on Soviet ones. Such a
figure would be meaningless. For ex-
ample, the Soviets "pay" their con-
scripts 5 rubles a month - $8 at the of-
ficial exchange rate. That compares
with several hundred dollars a month
spent by the Pentagon to hire a volun-
teer away from the private sector. .
Using Mr. Adams's approach, we
would conclude the Soviets are spend-
ing far less on soldiers than we are.
Yet a Soviet infantryman wielding a
ltalishnikov rifle is every bit as much
a fighter as a U.S. Private with an
M-16. It would be absurd for us to base
our manpower spending on the IS fiig-
ure or, for that matter, on any other
version of Soviet manpower costs.
Output is what counts. The same
applies to other areas of the military.
After criticizing the C.I.A.'s esti-
mates for the past seven years, Mr.
Adams is only too happy to embrace
their latest downward revisions of
Soviet arms spending. Indeed, the
C.I.A.'s track record in forecasting
key internal variables for that coun-
try has been dismal (in 1977 it pre-
dicted a Soviet "oil crisis" that never
materialized).
But the evidence, specially from
former Soviet economists and other
experts with firsthand experience in
the U.S.S R., suggests the C.I.A. has
c nsisten.; underestimated S" t
arms spending and continues to do so.
In 1976, for instance, the C.I.A. an-
nounced it had been off by 100.per-
cent in its assessment of the Soviet
defense burden. The figure was' re-
vised from 6 percent to 12 percent of
G.N.P. As Lev Navrozov pointed but
in a recent article, even these higher
figures do not account for the fact
that the Soviet military employs 13
times as many engineers as the-U.S.
military, or that the U.S.S.R. pr'o-
duces twice as much steel as the U.S.
but uses less in the civilian economy
(where does the rest go?).
The C.I.A. is a dosed, noncompeti-
tive bureaucracy with few reliable
sources within the U.S.S.R. It relies
heavily on official Soviet statistics for
its estimates. There is little ground
for Mr. Adams's new-found faith in
them. DAVID A. MORO
New York, Jan. 15,1984
The writer is a financial analyst at
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plans for the pending deployment of
new cruise missiles on submarines
stationed near the US coasts. This an-
nouncement followed Moscow's
walkout at the Intermediate-range
Nuclear Forces (INF) reduction talks
in Geneva. The Soviets have por-
trayed this action as retaliation for US
deployment of Pershing II and
IN FOCUS...
"lowest since World War II," the intel-
ligence report disclosed.
Per capita consumption was on a
roller coaster, increasing by about
one percent in 1981 and decreasing
by the same rate in 1982. The avail-
ability of quality foods
the CIA anal
-
,
y
the Central Intelligence Agency's Of- sis finds, has generally declined, with
fice of Soviet Analysis as suggesting per capita meat consumption in 1982
that Soviet defense spending was de- down from the peak level in 1979.
clining. The CIA report, released by Some signs of unrest-such as
the Subcommittee on International "short-lived work stoppages"-oc-
Trade, Finance, and Security Eco- curred in 1981 and 1982, according to
nomics of the Congressional Joint the CIA, but "expressions of discon-
Economic Committee, does not sup- tent generally were contained or
port such a conclusion. Instead, there averted. Faced with long lines at state
is the straightforward assertion that outlets, consumers dealt with the
"Soviet military capabilities will still shortages in ways that did not threat-
increase substantially over the next en the regime-by buying higher-
several years, even if the rate of priced foods in the officially sanc-
growth of procurement of military tioned free markets, for example, and
hardware does not increase. The through barter and black-market ac-
USSR is already investing so much in tivity."
military hardware that merely con- In the defense sector, the CIA analy-
tinuing procurement at the existing sis finds that while spending mea-
level would provide very large annual sured in constant 1970 ruble prices
increments in holdings of military continues to increase, the procure-
equipment." ment of military hardware has level-
The CIA analysis finds that the new ed off since 1976. Overall defense
regime headed by President Yuri An- spending, in step with overall eco-
dropov, who "apparently came to nomic growth, has slowed since then
power with the support of the military, to an annual growth of two percent
may well be under pressure to speed because of the lower procurement
up defense spending. For example, in trends, according to the report. This
the first three years of this decade we relatively flat growth level of the pro-
believe the Soviets have already had curement account is in contrast with
as many systems under development annual increases in military opera-
as in each of the previous two dec- tions and maintenance costs in the
ades." three to four percent range and
Pointing out that the steady expan- boosts in military personnel costs by
sion of Soviet production facilities slightly less than two percent a year.
provides an increasing potential for Stressing that trends in Soviet mili-
fielding an ever-increasing volume of tary spending are not a sufficient
weapon systems, the CIA study then basis to form judgments about Soviet
juxtaposes the fact that "any major military capabilities, the CIA analysis
effort to sharply accelerate the level warns that these derive from a com-
of military procurement, however, bination of weapons stocks, doctrine,
could make it even more difficult to training, leadership, and other fac-
solve the fundamental economic tors. Moreover, spending estimates
problems facing the Soviets." The don't allow for the "large stocks of
consequence of drastic procurement strategic and conventional weapon
boosts, the CIA argued, would be systems already deployed. Indeed,
lower civilian investment and slower current levels of spending are so high
growth or even a falling per capita that, despite the procurement plateau
consumption rate and "could, over noted, the Soviet forces have re-
the long run, erode the economic ceived since 1975 about 2,000 ICBMs
base of the military-industrial com- and SLBMs, more than 5,000 tactical
plex itself." combat and interceptor aircraft,
The CIA reports that the Soviet 15,000 tanks, and substantial num-
Union's economy is lagging behind bers of major surface combatants,
the goals set for it in the current Five- SSBNs, and attack submarines," the
Year Plan (1981-85), with the slow- CIA reported.
down evident "in practically every Despite the somewhat slower
industrial branch" and industrial pro- growth in Soviet defense spending,
ductivity "down dramatically." In the the USSR continues to outspend the
important area of machine buildin US "b I
ground-launched cruise missiles in
Europe.
Ambassador Adelman dismissed
the lattgr Soviet contention as a case
of "putting a new label on old wine."
Portraying these actions as., counter-
deployments" simply won't wash, he
suggested, because evidence built up
over "years and years" shows clearly
that the Soviets planned to do so all
along.
Soviet infractions of arms accords
are not confined to ballistic missiles
(see "The Soviets Are Violating Arms-
Control Accords," October'83 issue).
Among the latest evidence that sug-
gests noncompliance are reports by
Defense Department officials that the
Soviets are building between thirty-
six and forty Backfire bombers per
year. On June 16, 1979, President
Leonid Brezhnev informed the US
SALT II negotiators-headed by Pres-
ident Jimmy Carter-that the produc-
tion rate of the Soviet Tu-22M aircraft,
known in the US as the Backfire
bomber, would not exceed thirty air-
craft per year. The US accepted this
pledge with the proviso that "the
United States enters into the SALT II
Agreement on the basis of the com-
mitments contained in the Soviet
statement (concerning Backfire] and
that it considers the carrying out of
these commitments to be essential to
the obligations assumed under the
Treaty." A production rate in excess
of thirty aircraft a year obviously vio-
lates this stipulation.
In another recent development that
raises questions about Soviet compli-
ance, US intelligence found that two
squadrons of Backfire bombers have
been assigned to a Long-Range Avia-
tion (the equivalent of SAC's bomber
element) base in the upper part of the
Kola peninsula north of the Arctic Cir-
cle. Brezhnev's written statement on
Backfire appended to SALT II asserts
that the Soviets "will not increase the
radius of action of this airplane in
such a way as to enable it to strike
targets on the territory of the USA."
Forward-basing a number of these
aircraft in the Kola peninsula does ex-
ctly that, however.
Soviet Defense Spending
Grows Substantially
A saw fit to number of US interpret a news recent media reports
report by
9, y a arge margin. in 1981 the
which affects both military hardware d
ll
o
ar costs of Soviet defense ac
-
as well as the civilian sector in a pace- tivities were fort
-fi
t
y
ve percen
greater
setting fashion, growth has fallen off than US outlays; procurement costs
to about half the planned level, the alone were also forty-five percent
18 AIR FORCE Magazine / January 1984
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larger." The current plateau in pro-
curement spending appears to be re-
lated to a combination of complex
factors, including technological
problems, industrial bottlenecks, and
policy decisions. Some funds origi-
nally budgeted for procurement, the
Agency suggests, may have been di-
rected instead to research, develop-
ment, test, and evaluation (RDT&E)
"because of the increasing complex-
ity of weapon systems being re-
searched."
Defense Against Ballistic
Missiles
On April 18, 1983, the White House
directed relevant elements of the ex-
ecutive branch to undertake two
complementary studies of the feasi-
bility of a comprehensive defense
against ballistic missiles. The find-
ings of these studies-one dealing
with the technological and the other
with the strategic doctrinal aspects of
such an undertaking-were turned
over to the President, and at this writ-
ing he is reportedly close to making a
decision on a DABM (Defense Against
Ballistic Missile) program.
The Subcommittees on Investiga-
tions and Research and Development
of the House Committee on Armed
Services recently held intensive hear-
ings on DABM approaches, with the
Defense Department's Under Secre-
tary for Research and Engineering,
Dr. Richard DeLauer, acting as the
principal government witness. As-
serting that an effective multiple-lay-
ered defense may become feasible by
about the year 2000, he warned, how-
ever, that the "most fragile part" of
such a concept,is its ability to survive
"counteractions that might be taken
against it."
Dr. DeLauer predicted that a com-
prehensive defense against ballistic
missiles will have to cover four dis-
tinct phases of a ballistic missile's tra-
jectory-the boost, post-boost, mid-
course, and terminal regimes-be-
cause defense in one phase alone
probably would miss too many "leak-
ers." Interception in the boost phase
is both the most effective and difficult
element of DABM, he told the panel,
because detection, discrimination,
targeting, and interception would
have to be accomplished almost in-
stantaneously. Further, the attacker
might try to confuse the defender
with large numbers of decoys.
In the post-boost phase, the de-
fense still has a chance to destroy
several warheads at once, before they
have been directed against individual
targets. Pointing and tracking as well
as discrimination of decoys as op-
posed to legitimate targets during
IN fOCUS.>
this phase are probably easier to ac-
complish than at other times, he sug-
gested.
Mid-course defense, Dr. DeLauer
predicted, will turn out to be more
difficult because it becomes neces-
sary to discriminate between debris,
decoys, and the individual reentry ve-
hicles, which by now have separated
from the boost-post vehicle, or "bus."
In the terminal phase, discrimina-
tion is somewhat easier because the
atmosphere sorts out lightweight de-
coys from the heavy, shielded reen-
tering warheads, but there is only a
short period during which intercep-
tion can be accomplished.
The Defense Department's ranking
technologist dismissed as "loose
talk" the notion that the US could at-
tain an effective DABM capability with
a level of effort comparable to the
World War 11 Manhattan Project that
produced the A-bomb or to NASA's
Apollo program that landed man on
the moon. The difficulties associated
with fielding a workable DABM, he
told the congressional panel, are
equal to or exceed those of the Man-
hattan Project in each of such individ-
ual component areas as battle man-
agement, pointing and tracking, and
interception and destruction.
Singling out battle management as
the "most awesome" task associated
with DABM, he said some of the as-
sociated functions "we can't do yet."
He added that neither the computers
nor the hardening against counter-
measures needed to perform this
kind of battle management exist.
Kill mechanisms that are candi-
dates for various phases of DABM in-
clude pulsed and continuous-wave
laser designs. He singled out pulsed
shortwave lasers of either the X-ray or
excimer (rare gases) type because of
their potential capability to deliver a
high impulse or shock to a missile to
break or blow a hole in it and cause
structural collapse of the booster.
Free-electron, excimer, and hydro-
gen fluoride/deuterium fluoride
lasers emitting energy in a continu-
ous wave could be used to dwell on a
target until a hole is burned through
it. Continuous beams of neutral parti-
cles, Dr. DeLauer said, are potentially
capable of destroying internal com-
ponents of reentry vehicles and,
therefore, will be worked on further
under the DABM program.
Kinetic energy rail guns and minia-
ture homing vehicles will similarly be
explored because of their "hit-to-kill"
potential.
The cost of an operational DABM
system, according to Dr. DeLauer,
would be "staggering," with the R&D
phase over the next five years alone
ranging between $18 billion and $27
billion.
Washington Observations
* Dr. William Perry, former Under
Secretary of Defense for Research
and Engineering, recently predicted
at a symposium sponsored by the
MITRE Corp. that the "cost perfor-
mance" of computers will go up a
thousandfold over the next ten years.
The payoff in the defense sector from
such a staggering advance might well
be the capability to deter conven-
tional warfare with conventional,
nonnuclear weapons. Embedded
computers, he suggested, might be
imbued cost-effectively with a level of
artificial intelligence that approaches
human intelligence.
tit Air Force Chief of Staff Gen.
Charles Gabriel recently told an AFA
meeting that some 800 Air Force peo-
ple were involved in the Grenadian
rescue operation. MAC, TAC, SAC,
and Communications Command pro-
vided the bulk of the personnel. Be-
tween 300 and 500 USAF personnel
"were on the ground" at one time or
another, mainly to perform security
tasks, he said. SAC's role was intelli-
gence collection and aerial refueling.
TAC provided F-15 and E-3A AWACS
aircraft, he said, adding that some of
the command's A-10s "were de-
ployed but not used." Some of MAC's
C-130s had "some holes in them but
made it, [and] the AC-130s were most
useful" in shutting down hostile gun
positions.
(For more on the Grenada opera-
tion, see "Blue Christmas Coming
Up," p. 78.)
* With a Unified Space Command
apparently slated to come into being
in 1985, concern is mounting about
inadequate physical security at the
Space Command's Headquarters
located in downtown Colorado
Springs, Colo., in a commercial build-
ing rented by the General Services
Administration. Heavy civilian truck
traffic in the neighborhood of the
building and the known existence of a
Marxist cell in Colorado Springs
create a security nightmare for what
is, in effect, America's first line of stra-
tegic warning. Plans for a new build-
ing have been slipped to FY '87 be-
cause of budgetary pressures. ^
AIR FORCE Magazine / January 1984
Approved For Release 2009/10/06: CIA-RDP86B0042OR000701450001-4